Entrepreneurship KNEC Diploma Notes





Small scale enterprises play a major role in the development of a country’s economy. Small enterprises create many jobs, provide a variety of goods and services, contribute a lot of revenue and promote the use of locally available resources.


This sub-module unit introduces the concept of entrepreneurship and its importance in the promotion of the national development of a country and the differences between self and salaried employment.


Terms used in entrepreneurship



The term entrepreneurship has been described by different people in different ways.

Entrepreneurship is the process of scanning the environment in order to identify a business opportunity, gathering resources with the aim of establishing a profit making enterprise, under conditions of risk.


The concept of entrepreneurship became clear due to the researches by scientists like McClelland(1969) who stressed need for  achievement motive, Schumpeter(  ) who prioritized new combinations of means of production   by which there occurs disequilibrium, Cantillon (  )  who emphasized the functions of risk taking and uncertainty bearing, Drucker who stressed  on ‘systematic innovation’ consisting purposeful and organized search for changes among other scholars.




The term entrepreneur is coined from a French verb ‘entreprendre’ which means to undertake. Various scholars have defined the term entrepreneur in different ways but all place emphasis on the entrepreneur;

  1.  Bringing innovation and creativity into the enterprise.
  2. Taking calculated and moderate risks and
  3. Facing uncertainties

An entrepreneur is someone who detects a previously untapped opportunity to make some profits (either by lowering the costs of producing the existing goods /services or by creating new ways for people to satisfy their needs or wants through new products). They then brings together the necessary factors of production to exploit these opportunities.


Richard Cantillon defines an entrepreneur as a person who buys factor services at “certain” prices, with a view to sell their product at “uncertain” prices in the future.


David McClelland defines an entrepreneur as a person with a  high need for achievement, someone who has control over the means of production and produces more than they can consume in order to sell (or exchange) it for income.


Joseph Schumpeter defines an entrepreneur as a person who carries out new combinations of means of production within an organization, while distorting the routine of the existing products/services, to set up new products and services.




It is the practice of entrepreneurship by employees within an organisation. Intrapreneurship is a novel way of making organisations more profitable where imaginative employees entertain entrepreneurial thoughts. It is a significant method for companies to reinvent themselves and improve performance.



An intrapreneur is an employee who uses entrepreneurial skills to generate profits for the venture they works for.

v)An enterprise

It is a business organisation that provides goods and services to make profits and has growth potential.


A business enterprise is a legally recognised organisation designed to provide goods and/ or services to consumers.

vi)Business person

A person who undertakes any business activity for the purpose of making profit


Difference between self employment and salaried employment


Self employment


Self employment is a situation in which a person starts and operates a business enterprise. Since entrepreneurial skills drive people into self employment, entrepreneurship training is therefore expected to prepare trainees for starting and operating their enterprises effectively.


Self employment is a situation in which individuals create and run/operate their own income generating activities.


Salaried employment
Salaried employment is a process in which an individual is hired for a period of time, which may range from a few months to a few years, and is paid a given amount of money as salary or wages for the work done.


The merits and demerits of salaried employment are varied and largely depend on a person’s qualification, experience and specialisation area. The merits and demerits are also determined by the magnitude of growth, investment ability, profit and government support of a given organisation.


Defined working hours, guaranteed income, delegation of duties and specialisation are some of the main advantages of being in salaried employment. However, salaried employment is affected largely by organisational elements such as change of management, especially where new management introduces new policies, rules, conditions of employment and other statutory requirements to the organisation. Job security is not guaranteed and personal satisfaction and motivation is not wholly experienced.


Contribution of Entrepreneurship to National Development 

Entrepreneurship is the process that creates people (entrepreneurs) who contribute to economic development in various ways. The contributions are made through:

  1. Stimulating indigenous entrepreneurship and technological development.
  2. Creating jobs for themselves and other people
  3. creating wealth and distributing income
  4. Utilising locally available resources
  5. Dispersal and diversification of economic activities and mobilisation of savings.
  6. Promotion of entrepreneurial culture i.e. they become models to be imitated by potential entrepreneurs because of successful images already potrayed by existing entrepreneurs.
  7. Increasing regional business activities through the export of manufactured goods.
  8. Promotion of indigenous/local technology e.g. use of jua kali technology.
  9. Raising the economic productivity level.
  10. Narrowing the “missing middle gap”









Entrepreneurship was introduced by the economists of the eighteen century, and it continued to attract the interest of economists in the nineteenth century. In the present century the world has become synonymous or at least closely linked with free enterprise and capitalism. Also it is generally recognised that entrepreneurs serve as agents of change, provide creativity innovative ideas for business enterprises and help businesses grow and become profitable.



History of entrepreneurship globally

Entrepreneurship has been part of human history since records began. The bible, in the old testament, raises the idea of stewardship with regard to utility resources of the earth.( Gen. 2.15)The bible also in the new testament, reveals that  gain requires risk (the parable of talents) (Luke 17.11)

Entrepreneurship is also closely linked to the protestant work ethics and capitalists

(Weber 1995)

Early economists in the 18thc such as Richard Cantilon and Jean Baptiste  Say  recognized  in the role of  the entrepreneur as essential to the progress of the world economic system  8 developed  early economic theories  on entrepreneurship.

During the industrial revolution entrepreneurship was linked to the  creation of wealth and prosperity (long 1983)

The 1920s and Schumpeter (1934)linked entrepreneurship with the dynamic  process on innovation  from the 1960s  entrepreneurial SME (s)   have played an increasingly significant role  in the economic development of the world  (Kirzner 1973)

From the 1980s  government have increasingly seen  entrepreneurship as a means of creating innovative technology and services which can increase , national competitiveness fosters economic growth and  employment (stoner and Freeman1992)  Commentators suggests that two main reasons for the ascend reccefs of high   tech .

Entrepreneurial SME(s)  are the difficulty of the large organizations to grow  and prosper in an increasingly  competitive  market  place .

Consequently, 8th need to decentralize  despecialize and downsize the  operations (Harrell 1992) In construst in the 1980s those high growth new ventures   (SME(s))  known as  “gazelles’  represents only  5% of new business due, but were responsible for as much as  87% of all new jobs   created (Zimmbrer&Scarbrough  1996) in the UK in the 1980s  small businesses generated more than  805% OF UNP and more than 40% of employment , more than 80 Employment growth came from newly started  companies (Burns and Dewhurst  1989)  This development has accentuated  during the 1990s and today entrepreneurs help in high on the political agenda world wide.

History of Entrepreneurship in Kenya

In Kenya the concept of entrepreneurship was embraced at the end of the 1980’s and early 1990.  This was as a result of the international labour organisation (ILO) working in conjunction with the governments and private sector institutions in the projects related to SME development and vocational education.  Entrepreneurship education was seen as an important element to develop entrepreneurial attitudes.  However, no specific trainings were available.


To close this gap, funds were provided by ILO Geneva in 1996, to develop a training package for TIVET Institutions; that included entrepreneurship education and business skills.


History of entrepreneurship in Kenya started as a pioneer project borne out of the collaboration among university of Illinois, International Labour Organisation (ILO), UNDP and KTTC, in 1990.  It was offered at Masters and PhD levels by the University of Illinois and KTTC provided the premises and conducive learning environment.  In 1992 the program was transferred to Jomo Kenyatta University of Agriculture and Technology (JKUAT) while at KTTC started its first higher diploma class   in 1993.  The first class was sponsored by ILO.  Since 1995 students have been paying fees on  their   own without sponsorship. Otherwise it was, and still is a popular course. satisfaction especially with those students who have been attached and  apprenticed at their organisations.


Myths associated with entrepreneurship in Kenya

The following are some of the myths associated with entrepreneurship:


  1. Entrepreneurs take wild risks at the start of their business. Even though risk is an integral part of business, the start of business is not considered the highest risk. An entrepreneur is more likely to face bigger risks at the latter stage of the business.
  2. Entrepreneurs introduce break-through inventions in their start-up business. It would be easy to assume that entrepreneurs introduce new inventions, usually technological inventions. This is not true. Innovation may be important, but what makes entrepreneurship successful is the ability to execute an ordinary idea exceptionally.
  • Most successful entrepreneurs have years of experience in their chosen line of business. Bill Gates was still a student when he started Microsoft with Paul Allen. This story of several inexperienced entrepreneurs starting out a new business venture is replicated over and over again in the lives of millions of other successful entrepreneurs.
  1. One needs a lot of money to start a business. This is not so. Money is not always an important prerequisite to be able to start a business. What sets the successful entrepreneur apart from the not-so-successful is the ability to make do with what little he or she has. For instance, they look for other sources of money such as borrowing to grow their business.
  2. Start-ups use equity, not debt money. Entrepreneurs who put up equity coming from their own pocket only comprise less than 50% of the total start-ups. The majority of the companies are financed by debt.


Theories of entrepreneurship


These refer to the various approaches, which have been advanced to give an explanation as to why entrepreneurs behave the way they do. They are also known as the perspectives of entrepreneurship.


The theories try to explain whether entrepreneurs are born or made. The born entrepreneurs inherit the entrepreneurial behaviour from their parents and grandparents while made entrepreneurs acquire entrepreneurial behaviour from the behaviour in which they live in.


The following are some of the entrepreneurial theories:


Economic theory

The theory holds that entrepreneurial behaviour is determined by economic factors. Thus entrepreneurs are greatly influenced by economic activities. From an economic point of view an entrepreneur  is a person who brings together the factors of production into a combination to make their value greater than before.


According to Schumpeter, entrepreneurs are innovators who bring together the various resources to produce a new product/service through new ways/methods of production, finding new markets, finding new sources of materials to create a new business.


The economic theory provides basic data in the economic environment – activities for business start-ups. Thus entrepreneurial activities take place where conditions are supportive/conducive to investment. This theory revolves around an entrepreneur being an innovator, combining the various resources/ factors of production to create new products/wealth.

Psychological theory 

The theory holds that entrepreneurs possess unique needs, values and attributes, which drive them into entrepreneurial behaviour. It holds that people have personal traits and attributes, mental desires to be independent.

The main proponent of this theory is McClelland who attributed entrepreneurial behaviour to the high need for achievement. Entrepreneurs are characterised by high need for achievement, which tends to give them high desire to take personal responsibility in risks. They have little interest in routine activities, which are not challenging. According to this theory, entrepreneurial behaviour is environmentally determined and is inherent during childhood, where parents have certain high standards achievement.



Sociological theory

The sociological theory maintains that environmental factors such as values and beliefs influence entrepreneurial behaviour. (Max Weber, 1904). According too this theory, beliefs and societal aspects such as social status and recognition influence entrepreneurial behaviour.


Importance of Entrepreneurship theories

  1. Entrepreneurship theories bring greater understanding of entrepreneurship behaviour exhibited by different entrepreneurs.
  2. They enable one to understand the need for entrepreneurship and why some people are more entrepreneurial than others.
  • The theories bring out various approaches and perceptions held by entrepreneurs.
  1. Show that the desire for entrepreneurship is innate as well as environmentally determined.
  2. Helps us to understand the role played by role models through networks that provide support.


Entrepreneurial Environment

The environment within which the business operate has a great influence on the attractiveness of any opportunity. By business environment, we are referring not only to the physical environment, which is important and increasingly so, but also the political, economic, geographical, legal and regulatory contexts. Political instability, for example, renders business opportunities unattractive in many countries, especially for ventures requiring high investment with a long payback period. Similarly, inflation and exchange rate fluctuations, or a week judiciary system, are not a good environment to start a business, even if the potential returns are high. The lack of infrastructure and services (such as roads, electricity, water supply, telecommunications, transportation, and even schools and hospitals) also affect the attractiveness of an opportunity in a given environment.







Different types of entrepreneurs portray certain characteristics and patterns of behavior which could be all learned and/or acquired depending on the entrepreneur’s environmental background.

Entrepreneurs may play various roles in the enterprise. They scan the environment, identify opportunities, plan, organize resources, oversee production, marketing and liaise with their employees. They also innovate and bear risk.

 Types of Entrepreneurs

Entrepreneurs have their own typical qualities depending on their social, economic, political and cultural environment. Each has an independent way of thinking and a unique approach to decision making and handling situations in the business.


The following are the three main types of entrepreneurs.

  1. Craft Entrepreneurs
  2. Opportunistic Entrepreneurs
  3. Egoistic Entrepreneurs
  1. Craft Entrepreneurs

Craft entrepreneurs are those who may start a business using their learnt or acquired skills.

They may exhibit the following characteristics:

    1. They are of blue collar origin i.e they come from the informal sector of employment.
    2. Their education or training background is focused on the current business activity.
    3. They may have low or high technology experience.
    4. They have a reputation in a specific industry e.g masonry, teaching, engineering.
    5. They are marginal people and were mostly associated with fellow workers. i.e they do not identify with unions.
    6. They have limited cultural background and social induction with entrepreneurship.
    7. They are not interested in growing
    8. their business ie they are not ambitious. E.gmechanics who have worked in motor factories, leave to start their own simple garages.
    9. They insist that for things to be done right, they must be done by themselves
    10. They tend to hire people they have known for a long time.
    11. They gain their customers through prior relations or personal contacts.
    12. They do not hold the lowest post nor are they at the management level in the organization they worked for.
  1. Opportunistic Entrepreneurs

Opportunistic entrepreneurs are those entrepreneurs who may scan the environment in search of a viable business opportunity that may exist.  They are creative and very hardworking and venture in businesses they do not necessarily have skills or training in.

These types of entrepreneurs exhibit the following characteristics:

  1. They are of middle class origin
  2. Their education involved many different kinds of courses
  3. They have a variety of work experiences and they have been through various educational courses.
  4. They have a reputation across the industry.
  5. They are more aggressive/ambitious.
  6. They have been in senior profile levels in employment.
  7. They are previously associated with managers and business owners.
  8. They believe that those holding the lower posts in an organization should handle operations.
  9. Their customers are neither gained through prior relations nor personal contacts.


  1. Egoistic Entrepreneurs

Egoistic entrepreneurs venture into business not only because there exists a business opening but because they would also like to satisfy their ego. They are highly motivated. These types of entrepreneurs are:

  1. They are very eager to experiment upon new ideas.
  2. They can acquire material and financial resources to experiment upon new ideas
  3. Their economic system is well developed enough to bear the costs of venturing into a business.
  4. They are well networked are able to find new markets and customers with ease.
    • Qualities of an Entrepreneur

Entrepreneurs portray certain characteristics and patterns of behavior which can be all learnt and/or acquired. Every entrepreneur may not possess all of the qualities useful to make him/her successful. The following are the various qualities an entrepreneur may have:

  1. Risk taking

An entrepreneur is open to risk in his business.  They has to make decisions and implement plans, the success of which cannot be fully guaranteed. He risks financial, material and human resources at his disposal in the venture that he undertakes.

  1. Autonomy/independence

An entrepreneur by his/her own nature  likes to be his own boss and does not want to follow the instruction of another person  without thinking further. This, however, does not mean that they rejects counseling from others. They wants to try his own ideas and while making decisions, they has to form his own opinion and a set of course of action.  They is ready to carry   the burden of the consequences of the decisions they makes. Independence of thought is important.

  1. Creativity and innovativeness

entrepreneurs must have an aptitude for searching out new ways and means of doing things. They must be innovative in their approach to carrying out business activities. To remain competitive, they must experiment to find out new techniques of production,  kinds of materials, types or variety of products. They attempt to modify the method of manufacture to accommodate technological developments, discover marketing opportunities, identify sources of supply and develop sound organizations to meet requirements of the environment.

  1. Internal locus of control

Entrepreneurs possess a high internal locus of control.  They believe that achievement of goals is dependent on their behavior or individual characteristics.

NB: A person with external locus of control believes that achievement of goals is a result of luck or other people’s action. Such a person is not an entrepreneur.

  1. Need for achievement

Entrepreneurs believe in achieving the set goals. The need to achieve may be satisfied by acquiring higher status, succeeding in business, inventing and popularizing a product, targeting new markets and attracting a greater number of customers.  It is the achievement motive which makes an entrepreneur diversify, expand and innovate.

  1. Keenness to learn

Entrepreneurs analyze the results and try to learn from them. They constantly watch the path they take.  They draw inferences from feedback, information and have alternative plans.

Ability to marshall resources

Entrepreneurs have to bring together all the required resources in the right quantities at the right time. To achieve this, entrepreneurs must have patience, ability to convince others and a strong conviction that their job is going to be successful.

  1. Time-consciousness

Entrepreneurs are interested in timely delivery of results. In order to achieve this they must complete their activities within a given time.

  1. Organizational skills

Entrepreneurs have the ability to organize activities and utilize manpower in order to put them to productive use.

For effective utilization of resources, the entrepreneur has to build a suitable organization structure and with it, appropriate manpower.



Starting a business is hard work. An entrepreneur has to cope with the

demanding work of starting a business.  Success comes very slowly for those

who are not willing to work hard.


Integrity plays an important role in the advancement of any corporation and the lack of it poses risks of loss of confidence, faith and commitment of employees, clients and colleagues. Companies can promote integrity by establishing the moral standards expected of its employees and implementing systems to reinforce these standards. This will entail the provision of model roles, developing codes of ethical conduct and providing information channels to report questionable actions. Companies should also include integrity in their evaluations and consider ethical aspects when formulating long-range plans.


Successful entrepreneurs are persistent and hardworking. They master self-discipline to such extent that if a work is important and related to their goals, they will, eventually, complete it.


Getting things done is the vital link between motivations and their outcome. At times, entrepreneurs force themselves to choose work over fun, a boring job against a pleasant one, working on tax papers rather than reading a glamour magazine. This requires a self-control that many people simply fail to develop in them.


Successful entrepreneurs persist.They understand that it takes time to make it really BIG !!! They are prepared to go the extra mile and do that little bit extra for which they do not get paid.

Self Confidence

Self confidence is a key entrepreneurial skill for success. It is easy to become demoralized, frustrated and resentful if you lack self-confidence.


Self-confidence is concerned with how a person feels about his ability. A successful entrepreneur believes in his abilities. He is not scared to explore, take risk and take difficult decisions.


Entrepreneurs are highly motivated to achieve. They tend to be very competitive.

Information seeking 

Opportunity seeking


Goal oriented

Role of an entrepreneur in an enterprise

Entrepreneurs play different roles in an enterprise. These include:

  1. Initiator

The entrepreneur as the prime mover of the business.  He/she is the director of the enterprise and comes up with ideas which he convinces the members of the organization to follow.  He/she is therefore the promoter of the business.

  1. Director

The entrepreneur as a person who engages the participation of others. They knows that they cannot run the enterprise single handedly. To effectively manage the enterprise, he requires the knowledge and skills from diverse persons.  The entrepreneur incorporates shareholders incase;

  1. The enterprise is too large for him/her to purchase.
  2. They is not able to purchase the enterprise alone.
  • They does not want to commit his/her time wholly in the business.
  1. Manager

The entrepreneur as the person in charge of coming up with the organizational structure.

The entrepreneur is in charge of developing an effective organizational structure showing the distribution of the employees’ posts and responsibilities.  The organizational structure is important for effective control and monitoring operation in the firm and facilitates communication with workers.

–         The entrepreneur as the person in charge of developing an organizational design. He has the role of establishing an effective organizational design reflecting the daily activities of the organization in relation to time, beliefs and philosophies and how the business relates with the external environment.

  1. Financier

The entrepreneur and the director.   They is the controller of all the enterprise activities.   He mobilizes resources needed to start and run a business i.e finances, raw materials, human effort among others.


Entrepreneurial Tendency Test

Ring  round your answer (Yes, Maybe, or No) to each of the following questions, then check your score below.


I am persistent                                                                                                 Yes      Maybe    No

When I’m interested in a project, I need less sleep                                          Yes      Maybe    No

When there’s something I want, I keep my goal                                              Yes      Maybe    No

When there’s something I want, I keep my goal

Clearly in mind                                                                                                Yes      Maybe    No

I examine mistakes and learn to succeed

I have new and different ideas

I am adaptable

I am curious

In am intuitive

If something can’t been done, I find a way

I see problems as challenges

I take chances

I’ll gamble on a good idea, even if it isn’t a sure thing

To learn something new, I explore unfamiliar subjects

I can recover from emotional setbacks

I feel sure of myself

I’m a positive person

I experiment with new ways to do things

I’m willing to undergo sacrifices to gain possible long-term rewards

I usually do things my own way

I tend to rebel against authority

I often enjoy being alone

I like to be in control

I have a reputation for being stubborn


Once you have answered all the questions, give yourself 3 points for every ‘Yes’ answer, 2 for every ‘Maybe’ and 1 for every ‘No’. Add up your score.


60-75 points

You possess the attributes of the entrepreneur.  You can start your business plan immediately.


48-59 points

You have potential but need to develop yourself.  You may want either to improve your skills in your weaker areas or hire someone with these skills.


You may not want to start a business alone.  Look for a business partner who can complement you in the areas where you are weak.

37 points and under

The entrepreneurial life may not be for you.  You will probably be happier and more successful working for an established company.  If you still hanker after doing your own thing, remember there are organizations that reward those employees who take an entrepreneurial approach in a corporate context.






Customers’ tastes and needs are continually changing. Thus there is need for the entrepreneurs to think of new ideas and better methods of running their businesses in order to satisfy the customer. Creativity and innovation are therefore key to generation of such new ideas and methods of improving goods and services to meet the customers’ needs.


This sub-module unit discusses the importance of creativity and innovation, the barriers to creativity and innovation including managing barriers to creativity and innovation.



Meaning of creativity and innovation 

  1. i) Creativity

Creativity is the ability to bring something new into existence. It is the ability to think and act in new ways. This is done through the process of germination, preparation, incubation, illumination and verification.


  1. ii) Innovation

It is the process of doing things in a new way for value addition. It is thinking creatively about something already existing.  Innovation transforms creative ideas into useful application. For example, having a new use for old things. It is also an intentional change to add value. For example, the tape recorder, walkman, and CD player are all innovations on the phonograph or landline telephone to cell (mobile) phone.


iii)        Discovery

It is making known that which has been in existence but whose uses have not been perceived. For example,  Harvey’s discovery of the circulation of blood.



  1. Invention

It means bringing something new that has not been in existence into existence. It is the act of creating or producing by exercise of the imagination and have no prior existence. For example, cellular  phone money transactions.

Process of creativity and innovation

Process of creativity and innovation

The process most commonly used to encourage creativity is brainstorming. It works best in a group situation. Another process that can be used both individually and in a team environment is the SCAMPER process. The process works particularly well in creating new products and services that will add additional value to customers. Here is how to use the SCAMPER process, step by step:




  1. Think of ways of replacing one thing with another. For example, could plastic replace wood, aluminum, or steel? Could electronic transfer replace the mail or a phone call replace a fax message?


  1. Are there ways of bringing things together that could result in one unique item? For example, could some services be combined to produce one-stop shopping?


  1. Figure out what changes can be made to improve products. Similar products could be added together, for example, such as two blades joined to a twin razor. Adding stamps to each other can create a single roll or sheet. An alternative is to unite dissimilar products to create something new, such as a Swiss Army knife.


  1. Think about the possibilities of changing the size or the nature of the product itself. Post-it Notes have done an exceptional job of taking the basic technology of a multiple-stick product and producing different sizes, colours, shapes, and uses.


  1. This is a commonly used strategy. Excess newspapers can be made into fire logs; a kitchen knife can be used as a screwdriver.


  1. Consider the benefits that can be derived from less use. For example, packaging is reduced if refills are used. Generic products save advertising.


  1. Investigate the advantages of changing the order or sequence of events, or see if things can work the opposite way. One example with a twist on this theme would be a car that goes in two directions, not only one.






Creativity as a process has several stages. These are:

  1. Germination

Getting the mind ready for creative thinking using

methods such as

  • realizing that every situation is an opportunity to learn
  • reading on a variety of topics/subjects
  • creating a file of interesting articles
  • developing the ability to listen to and learn from others
  • attending professional/ trade association meetings, both to brainstorm with others having a similar interest and to learn how others have solved a particular problem.
  • Investigation.

Studying the problem and understanding its components


  1. *Transformation.

Identifying the similarities and differences in the information collected.


  1. Incubation.

The subconscious needs time to reflect on the

information collected. Incubation can be enhanced by

  • doing something totally unrelated to the problem/opportunity under investigation
  • taking time to reflect (freeing the mind from self imposed restrictions)
  • playing and relaxing
  • thinking about the issue before going to sleep so that the subconscious can work on it during sleep
  • working on the problem or opportunity in a different environment.

This occurs when all the previous stages start getting


  • Verification.

Involves testing if the idea will work, is practical to implement and is a better solution to a particular problem or opportunity. Experiments, test marketing and piloting are some of the methods that can be used.

(vii)      Implementation.

Transforming the idea into reality by bringing it to the market. This is what distinguishes the entrepreneur from the inventor.

Importance of creativity and innovation

Creativity and innovation are key to generation of new ideas and methods of improving goods and services for customer satisfaction. They are key to the success of a business particularly when strategizing during strategic planning, and when designing new products and services. Creative thinking and innovation are particularly useful during planning and setting out strategies to compete.  Thus creativity and innovation:

  1. i) Leads to increased productivity
  2. ii) Helps in profit maximization

iii)        Motivates employees to become more creative

  1. iv) Leads to diversification of products and services
  2. v) Introduces a variety of goods and services

In order to arouse creativity, the following ideas may be explored:

  • Is there a better way of doing things in a business organisation?
  • Need to challenge custom, routine and traditions of the organization.


Barriers to creativity and innovation

These are limitations to creativity and innovation which may include the following:

Negative Attitude

The tendency to focus on the negative aspects of problems and expend energy on worry.

Fear of Failure

For an entrepreneur failure is not a discouraging factor but is a necessary condition and a stepping stone to success.


Executive Stress

It is the state of not having time to think creatively. An over-stressed person finds it difficult to think objectively. Unwanted stress reduces the quality of all mental processes. An entrepreneur should avoid executive stress because it hampers creativity

Following Rules

A tendency to conform to accepted patterns of belief or thought – the rules and limitations of the status quo – hampers creative breakthrough. Some rules are necessary, but others encourage mental laziness.


Making Assumptions

Both conscious and unconscious assumptions restrict creative thinking. There is a need for an entrepreneur to identify and examine assumptions made to ensure new ideas are not excluded.

Over-reliance on Logic

This is investing all intellectual capital into logical or analytical thinking – the step-by-step approach – which excludes imagination and therefore creativity.


Other barriers include the following:

  • High cost of research and development.
  • Inability to protect invention through patents
  • Searching for the one right answer
  • Being over specialized
  • Believing that one is creative
  • Creativity is not taken seriously

Managing barriers to creativity and innovation

Barriers to creativity and innovation can be overcome by removing obstacles to creativity and logical thinking. The barriers to creativity can be managed using the following process:


Stage 1:  Experience
Experience is needed in order for one to discover a creative solution.  That requires being open to ones environment and feelings.
However, there are blocks to obtaining experience such as:

  • Fear of not learning.  If you feel unable to retain information, you’ll be anxious about new experiences.  If you fear being tested on what you were supposed to learn, you may shut down.  If your self-concept calls you incompetent, you won’t put yourself in a position to be humiliated.  And if you are always being compared to people who are supposedly “brilliant,” you may be driven away.  All of these can limit your experiences.
  • Fear of violating standards.  Were you raised to believe that certain topics are “none of your business,” certain actions “impertinent”?  If these feelings cause you to feel “out of bounds,” you’ll avoid investigating a wide range of phenomena and your curiosity will shut down. You may even close off your unconscious and all the creative potential it holds.

Stage 2:  Association
You must be able to associate experiences into a useful product.
What are the blocks to making associations?

  • Over valuing rationality.  If you stay in control by being utterly rational, you may reject associative thinking, and forgo using intuition.  Equally, you will curtail your creativity..
  • Fear of self-awareness.  To make useful associations, you must avoid self-deception and understand the consequences of your actions.  For example, one lab director eventually realized that his unwillingness to acknowledge other people’s contributions stemmed from his fear of seeming incompetent.  Denigrating the “competition” helped him avoid feeling uncreative himself.


Stage 3:  Expression 
Once you’ve associated diverse experiences or information, you must express your idea: a creative association isn’t worth much unless you can communicate it.

What are the obstacles to expression?

  • Fear of embarrassment.  If you are  uncertain of your abilities, fear criticism, or fear speaking before a group (or certain individuals), you’ll have difficulty bringing ideas to light.  Such ideas will remain underdeveloped for lack of feedback.
  • Fear of assertion.  If you express what you feel, will people still like you?  Will you get into trouble?  Tom Sawyer always figured that “staying mum” kept him out of a jam; but if you agree, your inhibition about expressing ideas will limit your creativity.

Stage 4:  Evaluation
People who undervalue their ideas tend not to be creative.  Some hurdles an stand in the way of your evaluation process:

  • Fear of humiliation.  If you rate your solution highly, and other people think it’s rotten, you could end up looking like a boaster or fool.  (That’s why people adopt false modesty or convince themselves that their creations are boring or obvious.)
  • Fear of rejection.  On the other hand, if you are negative about your own solution or product, people may ignore it—and you.  After all, if you don’t think much of your work, why should they?

Stage 5:  Perseverance
Original ideas and products are fun, but unless you persevere, they won’t make anybody rich. The concept of continuous improvement says any process or product should be endlessly revised and improved.
Perseverance-related blocks include:

  • Fear of failure.  What if you carry your idea to completion and find it’s not as good as you thought (meaning you’re incompetent)?  Therefore play it safe by failing to develop your product to the point where it’s a truly creative work.
  • Lack of rewards.  Much of your creative activity is probably motivated by the admiration your creations inspire in others. Unfortunately, for many people, the work needed to turn a creative impulse into a product is less rewarding. Do you regard yourself as an “idea” person instead of a “detail” person?  This attitude may partly stem from fear that you are poor at follow-through, meaning your impulse will come to naught.

Other ways of managing barriers to creativity  would include:

i)Budgeting for research and development

ii)Strengthening public institutions that process the(such as KIRDI, KIPRI and WIPO) patenting proces

iii)Rewarding creativity

iv)Promoting creativity training

v)Avoiding mental blocks

vi)Being systematic

vii)Being a problem solver

viii)Approaching issues from different angles

  • Focusing on end results rather than the means
  1. Embracing divergent views








An Entrepreneurial Culture is a system of shared values, beliefs and norms of members of an organization or community. It includes; valuing creativity and tolerance of creative people, believing that innovating and seizing market opportunities are appropriate behaviors to deal with problems of survival and prosperity, environmental uncertainty, and competitors’ threats, and expecting the community and organizational members and to behave accordingly.

An entrepreneurial culture will lead to the growth of trade and industry in a country.


This sub-module unit discusses the concept of entrepreneurial culture and the factors that inhibit entrepreneurial development.



Concept of Entrepreneurial Culture

Culture encompasses a wide variety of elements, such as values, norms and artefacts. These are dependent on language, social situations, religion, political philosophy, economic philosophy, education, manners and customs.

  1. Values

These are ideas about what is important in life. They guide the rest of the society.

  1. Norms

These are expectations of how people will behave in different situations. Each culture has different methods called sanctions of enforcing norms.

Sanctions vary with the importance of the norm.

Norms that society enforces formally are called laws

  • Artefacts

These refer to material culture. They are derived from the cultural values and norms.


NB: Culture is dynamic. Cultural change can be caused by the environment inventions and other internal influences and contact with other cultures.


Example: Some inventions that affected western culture in the 20th century were the birth control pill, television

and the Internet. The television brought similar visual programmes into many homes but influences how and when family members interact with each other.


The rate of savings and investment depends on the influence of cultural benefits upon the people. The culture may emphasise on some jobs while detesting others. Some communities may be more entrepreneurial than others. For example, the joint family system in which elders opinions are not questioned, may lead to children who are unable to develop, expand, innovate or change the business.

Elements of Entrepreneurial Culture

The following are elements of entrepreneurial culture:

  • People are empowerment focused
  • Value creation through innovation and change
  • Attention to the basics/detail
  • Hands-on management
  • Doing the right thing
  • Freedom to grow and to fail without embarrassment
  • Commitment and personal responsibility
  • Emphasis on the future


NB: It is through the interaction of founding values, theories and new venture that organisational culture begins to take shape and perpetuate itself.


If long term values are held then the creation of culture by the entrepreneurial team may be a good predictor of the future of the firm.


Habits that promote entrepreneurial development


As stated earlier, values, norms and beliefs guide the society towards acceptable behaviour which leads to formation of good habits which may promote entrepreneurial development. The habits include:



A person who is independent finds it      difficult to work for others. Such a person also has the ability to create and innovate, therefore promoting entrepreneurial development.


Time consciousness

Entrepreneurs value and effectively manage time and are able to achieve set goals.


Direct/personal involvement

An entrepreneur is a hands-on person and believes in participatory approach.


Risk taking

An entrepreneur continually takes moderate or calculated risks.  This enhances growth of the enterprise.


Willingness to fail or make mistakes

An entrepreneur does not fear failure but learns from it.

*** continue from  here


  • Family history


  • Decision

Follows dreams with decision

  • Relationship with others

Transactions and deal making. Build strong relationships with people around them


Factors inhibiting entrepreneurial development

The following factors may inhibit entrepreneurial development

  • Poor or lack of business acumen
  • Poor marketing techniques
  • Poor pricing policy or poor casting
  • Poor networking and benchmarking to expand business horizon, customer base and markets
  • Negative attitude towards entrepreneurial culture
  • Lack of achievement motivation
  • Poor delegation due to belief of self righteousness, confidence or lack of trust in other people.
  • Inability to uphold new technology, ideas and practices
  • Failure to utilise time effectively


Ways of managing factors that inhibit development of entrepreneurial culture.

These include:

  1. Relevant training to gain skills and experience
  2. Ability to apply marketing, research, promotion and publicity
  3. Employing people with right qualification to advice on pricing and costing of products to beat competition
  4. Upholding social networking, joining business groups like chamber of commerce and business associations in order to expand business horizon, customer base and markets.
  5. Inculcate entrepreneurial culture and have positive attitude outlook towards entrepreneurial activity benefits.
  6. Employ qualified experienced workers and delegate responsibility and encourage teamwork and team spirit
  7. Training workers in appropriate technology use and innovative ways and practices
  8. Manage time effectively by working within blocks of time. They can also be trained in time management and time valuation.








Starting a business requires knowledge, skills, abilities and values. It is therefore important for entrepreneurs to develop viable business ideas by identifying community needs for products and services.


This sub-module unit focuses on business ideas and opportunities, methods of generating these ideas and opportunities and finally assessing the viability of the generated opportunities.

Meaning of business opportunity

A business opportunity is an attractive idea which provides the possibility of a return for the entrepreneur taking the risk. Such opportunities are presented by customer requirements and lead to the provision of a product or service which creates or adds value to the buyers or end users.


Characteristics of a good business opportunity

A good business opportunity must fulfil or be capable of meeting the following:

  • Real demand i.e. it should respond to unsatisfied needs or requirements of customers who have ability to purchase and are willing to exercise that choice.
  • Return on investment – provide durable, timely and acceptable returns or rewards for the risk and effort required.
  • Competitive – Equal to or better – from the viewpoint of the customer – than other available products or services.
  • Meet objectives – meet the goals and aspirations of the person taking the risk
  • Available resources and competencies – be within the reach of the entrepreneur in terms of resource, competency, legal requirements etc.


Ways of Generating business ideas

What is a Business Idea

  • An opportunity in the environment which, can be translated into a business activity.
  • The existence of a situation in the environment which, can be advantageously turned into a business activity.
  • The existence of an opportunity which can be exploited for making money through the operation of business activities.
  • It is the response of a person (s) or organisation to solving an identified problem or to meeting perceived needs in the environment (markets, community)


Why search and evaluate business ideas?


  • You need a great idea to start a new business. A good business idea is essential for successful business venture both when starting a business and to stay competitive afterwards
  • Business ideas need to respond to market needs. Customers have needs/wants waiting to be satisfied. Firms that are able to satisfy these requirements are rewarded.
  • Business ideas need to respond to changing consumer wants and needs. i.e. provide opportunities for the  entrepreneur to respond to demand with new ideas , products/services
  • Business ideas help entrepreneurs stay ahead of competition. Challenge is to be different or better than others. If you don’t come up with new ideas products/services a competitor will.
  • Business ideas use technology to do things better. Technology has become the major competitive tool in today’s markets as a result of which many people have to come up with new ideas.
  • Business ideas are needed because the life cycles of products are limited. Products have a finite life, they become obsolete or outdated. Firms have to introduce new products
  • Business ideas help to ensure that businesses operate effectively and efficiently .
  • There are so many business opportunities available at any one time and the requirements for translating them into business activities differ between each of them.
  • The need to develop a competitive edge by providing something new that has little or no competition
  • The success and profitability differ between various business opportunities, hence need to pick one with profit and success potential.

Finding a good idea is the first step into transforming the entrepreneurs desire and creativity into a business opportunity.


Sources of business ideas

Ideas can be generated from:

  1. Hobbies/personal interests
  2. Personal skills/experience
  • Franchises – An agreement where manufacturers or sole traders of a trade mark, product/service gives exclusive rights for local distribution to independent retailers in return for their payment of loyalties and their willingness to conform to standardized operating procedures. Common type of franchise are those that offer name, image and method of doing business and operating procedure.
  1. Mass media (newspapers, magazines, TV, internet)
  2. Business exhibitions
  3. Surveys
  • Customer complaints
  • Changes in society
  1. Brainstorming
  2. Being creative

Ways of generating business ideas

There are various ways through which business ideas can be generated. These include:

i)Identifying a need in the community: people usually have many unsatisfied needs. By carrying out a market survey on the location where you need to establish your business and talking to the potential customer may reveal gaps in that market.

iii)Market research: Conduct a market survey and try to identify business opportunities existing in the market. People may be requiring new product/services or the ones existing could be having several weaknesses. These are good opportunities for you.

v)Listening to complaints of customers so that you improve an existing business.

vi)Brainstorming-  this involves sitting in a group and trying to think of as many possible businesses as possible using the ‘freewheel ’policy . take time and digest all the suggested ideas as a basis for making the final decision on the one most suitable for you.

v)Creativity – By looking at things in a new way  and  combining  two or more ideas in a new way, such as, one stop shopping spots for customers e.g.. a restaurant and a salon combination.


Business ideas can also be generated through developing personal hobbies and discussions with friends

Guidelines for Business Idea Generation Process:

  • Think of as many ideas as possible
  • Go out, look and listen.
  • Always analyse ideas carefully before finally selecting which ones to implement.
  • Be simple
  • Start small . “If you want to go somewhere start small” Schummacer


Evaluation of  business opportunities for viability .

Ideas and opportunities need to be screened and assessed for viability once they have been identified or generated. This is not an easy task though important because it makes the difference between success and failure.

The exercise certainly helps in minimising the risks and thus the odds of failure.

Identifying and assessing business opportunities involves determining risks and rewards/ returns reflecting the following factors.

i)Personal goals and competencies of an entrepreneur.

It is important for an entrepreneur to possess competencies, knowledge, skills and abilities before starting a business where these competencies are lacking, it’s vital to develop or bring in others/managers that compliment what is already available.

ii)Length of the ‘window of opportunity’.

Opportunities do not exist forever. The entrepreneur has to assess how long this window will be opened in order to make an investment decision.


Is there a need for the product/service? It is also important to know the size of the market.

iv)Management skills.

Those businesses that require high level of capital injection, require proper management skills.


Check out whether the business has a competitive edge over other competitors e.g. potential constraints and if the industry faces existing entry barriers.


Availability and access of these resources determines whether certain opportunities can be pursued.


This refers to political, economic, geographical, legal, regulatory and also

physical environment within which a business operates.

viii) Business plan

The process of examining the factors discussed above is often the initial step in developing a business plan. Investors and lenders may require these issues to be considered and set out in form of a business plan.





For entrepreneurship to thrive, an entrepreneurs needs to be motivated.  Motives are the needs, drives and values that add energy to and direct one’s abilities.


This sub-module unit addresses the meaning of motivation, motivational theories and factors.



Definition of terms 

Motivation refers to a drive that is sufficiently pressing to direct the person to seek satisfaction of the need while a need becomes a motive when it is aroused to a sufficient level of intensity. In human psychology it is realised when a person feels strongly that he is lacking something. That person is bound to take a certain positive action so as to reduce or eliminate the deficiency. The person is therefore motivated by the need to act in a manner such that his need is satisfied. Therefore, the forces that have moved that person to react in the manner he does are his motivations.


Motivation can be viewed better by looking at factors which help sustain the quality or intensity of the manifested behaviour.

Many theories have been developed on motivation. The following are some theories that could support motivation.


  • Achievement Theory (mcClelland)

Human beings are seen to be driven by three main factors:

  • Need to achieve
  • Need for power
  • Need for affiliation


To achieve means success and therefore the underlying entrepreneur motivation. If you need to achieve you select goals which will accomplish the need. This need makes an entrepreneur to be persistent. They choose challenging tasks. This motivation behaviour is related to parental characteristics, family, culture, role models.

  • Laws of Control

Talks about the need to control. To make things happen. We want to see the outcome of an event. Our behaviour will determine the results. Self concept here is very crucial, want to strive  for your success(internal laws of control)

External laws of control – believes that outcome of an event is influenced by factors beyond you. They believe in others influence on an activity. So an entrepreneur must know whether they is driven by an inner need to succeed and win. Are you internally or externally driven. In evaluating your internal – external control dimensions, an entrepreneur depicts a sense of control over his/her life.



Abraham Maslow’s Hierarchy of Needs


This theory was developed by Maslow in 1954. It states that human needs are arranged in hierarchical order beginning with the most basic need.


Maslow suggests that each level in the hierarchy must be achieved before an entrepreneur can be motivated by the next level. E.g. when a social need is satisfied, it ceases to be a motivator. Your full potential motivation depends on you not others. One must strive to realise your full potential.

Many people like the comfort and security they have in their jobs. As long as they are able to provide to their families. They could be having resources needed to start a venture but have no drive to do so.


Motivation for venturing into business vary a lot. Those frequently cited would include, both internal and external motivational factors

Entrepreneurial motivation factors

Although the motivations for venturing out alone vary greatly, the following are some of the reasons cited for becoming an entrepreneur:


Internal motivations and drives include:


  1. Need for self actualisation
  2. Need for achievement
  3. Need to take up a challenge
  4. Need for inadequacy
  5. Need for success in certain class (social)
  6. Need for adventure – discover the business world
  7. Need to reduce tension
  8. Need to acquire the social status
  9. Need to control power
  10. Unemployment

External motivations and drives

  1. Role models – looking at those already successful in business
  2. Family background
  3. Training
  4. Support social systems
  5. Geographical position of the area
  6. Needs for external income as a push
  7. Government incentives
  8. Market availability
  9. Infrastructure
  10. Credit facilities





Entrepreneurial competencies play an important role in entrepreneurship development. To achieve high productivity levels in the enterprise, the entrepreneur needs to acquire entrepreneurial competencies in order to carry out effective managerial and entrepreneurial functions.  With the  acquisition of  entrepreneurial competencies activities such as; employee motivation, organisational communication, employees training and development, participation and decision making, among others will be now be performed effectively.



 Definition of entrepreneurial competence

A competence is the ability, which an individual requires to do an assigned job. It is a work related concept which refers to areas of work at which the person is competent.


Entrepreneurial competencies are clusters of related knowledge, attitudes, and skills which an entrepreneur must acquire through managerial training and development to enable him produce outstanding performance, maximize profit, while managing a business venture or an enterprise

Key entrepreneurial competencies

To achieve high productivity levels in the business enterprise, an entrepreneur requires having entrepreneurial competencies.  The following are some of the competencies necessary for setting up and managing a successful business enterprise:


  1. Time management

Time is a scarce resource, it is irreplaceable and irreversible, therefore to achieve more in the day to day business, the entrepreneur must be thoroughly equipped with the skills  for managing his/her time effectively. The entrepreneur needs to learn how to manage their time effectively by carrying out activities such as; quick decision making habits, keeping diaries, delegating duties, avoiding unnecessary interruptions, properly conducted meetings, avoiding queues, selecting and following priorities among others.  A successful entrepreneur is an effective time manager.


  1. Communication

Communication is the transfer of ideas from the sender to the receiver.  It is a means of transmitting information, work instructions and feedback in the business enterprise. It is an indispensable management tool, and an entrepreneur must learn to communicate in correct, clear, short and courteous manner in order to accomplish desired goals. The entrepreneur requires effective communication skills for the following reasons:

    1. Communication process helps the entrepreneur effect the managerial functions of planning, organizing, staffing, influencing, interacting, controlling and coordinating.
    2. It facilitates distribution of work to various categories of staff.
    3. It is an effective tool for staff participation in decision-making and entrepreneurial effectiveness.
    4. It enhances the development of actual understanding among all organizational members.
    5. It helps create good public relations of image for an organization.


  1. Human Resources Management

The human resources are the most difficult to obtain, the most expensive to maintain and the hardest to maintain in a business enterprise. The entrepreneur needs to put in place both human resources (labor) and capital resources (money, machinery, materials and methods) in order to achieve the overall organizational goals and objectives.  The effective management of human resources determines the success or failure of the organization because all other resources depend on the human element.


As the business enterprise grows, the entrepreneur may need to hire new employees.  To do so, he must follow important procedures for of interviewing, hiring, evaluating and preparing job description for new employees.


  1. Marketing Management

Marketing skills in the growth stage of a new venture are also critical to a venture’s continued success.   A business enterprise will need to develop new products and services to maintain it’s distinctiveness in a competitive market. This should be an ongoing process based on information regarding changing customer needs and competitive strategies. This information can be obtained formally using survey or focus groups, or informally by direct contact with customers by the entrepreneur or his/her sales forces.


  1. Social Responsibility

The establishment of every business venture is backed up by the profit motive which leads to the production of goods and services.  The business venture also has the responsibility to embark on certain projects within and outside its environment as part of its social responsibility.  The entrepreneur needs to effect some social responsibilities contribution to community development, product safely, employment generation, ethical business among others.


  1. Leadership

Leadership is an important factor in determining the success or failure of a business enterprise. For an entrepreneur to succeed, they must have the ability to direct the organization and persuade others to meet the objectives of the business.  They has to be creative with unique leadership qualities and personal styles.


  1. Decision- making

Decision-making is very important to the success of an entrepreneur.  They makes decisions on a daily basis and therefore has to acquire adequate knowledge and skills in decision making to enable him/her make the right decisions and implementing them in order to achieve the optimum result in a given situation.


  1. Financial Management

Every business enterprise requires capital with which to start its operation. This capital refers to the money needed to start and operate the business assets.  An entrepreneur needs to acquire knowledge on financial management issues like anticipation of financial needs for the enterprise, acquisition of funds and allocation of funds in order to yield optimum result.


The essence of financial management knowledge is therefore to ensure that there is adequate cash on hand to meet the necessary current and capital expenditures as well as to assist in maximizing growth and profits.






When starting a business the entrepreneur must comply with certain requirements and regulations.

This sub-module unit looks at the procedure to be followed in starting a business, factors to be considered in starting a business including support services required and available for the entrepreneur.


Procedure for starting a Small enterprise

For a business to succeed the right approach must be followed. Below is a suggested approach that can be followed:

  1. i) Idea generation.
  2. ii) Market survey:

–           Define problem, target population, select sample, define survey instruments, collect data,

analyse data, report findings


  1. Business plan

–           business description

–           marketing

–           operation/production

–           management

–           finance

–           risks and assumption


  • Selection of a suitable location.

iv)mobilisation of finance

  1. Business registration



Factors to consider when starting a small enterprise

Below are some of the factors to consider when starting a business:

  1. Entrepreneurial traits
  2. Business management and technical skills
  • Long term market demand for product/service
  1. The cost of starting, operating and personal finance
  2. The level of competition – direct, indirect and future
  3. The business location – zoning law and appropriateness
  • The rules and regulations for operating the business.
  • Legal registration
  • Tax compliance
  • Relevant licenses
  • Code of conduct
  • Environmental requirements
  • The anticipated profit.
  • Importance of profit
  • Adequate to cover inflation rate and opportunity cost
  • Adequate to cover all expense, savings and investment
  1. The machinery, tools and equipment required and their cost.
  • Lease/buy decision
  • Calculation of lease/ buy decision
  • Maintenance cost
  • Availability of spare parts
  • Cost of service
  • Availability of technical support
  • Technological advances
  1. The source of supply of goods/raw materials.
  • Identify long term supply sources/ reliable source
  • Quality of supply
  • Alternative sources of supply
  • Terms of supply should be favourable

Causes of Business failure


  1. Inappropriate business management and technical skills (adaptable to changing customer needs).
  2. Inadequate financing
  • Start-up
  • Operating
  • Expansion capital
  • Personal expenses
  • Lack of proper record keeping
  • Use of records for sound decision making
  • Little understanding of accounting records
  1. Improper costing and pricing
  • Retail
  • Manufacturing
  • Service business
  • Direct costs
  • Indirect cost
  1. Incompetent employees
  • Lack of motivation
  • Poor pay
  • Unskillful
  • Job not marching skill
  • Employment of relatives
  • Inaccurate recruitment procedures
  • Training and development
  • Clear job description
  1. Neglecting customers
  • Customer centered organization
  • Exceed customer expectations
  • Survey customer satisfaction
  • Provide avenue for resolving customer issues
  • Prompt service and resolution to customer
  • Customer friendly terms
  • Ignoring competition
  • Know your competitors
  • Know your position in regard to your competitor
  • Know the competitors strategies
  • Note direct, indirect and future competitors
  • Coping strategies
  • Neglecting suppliers
  • Make prompt payments
  • Develop good relationship with suppliers
  • Adequate time to supply



Forms of business ownership

The following are the types of business organisations:

i)Sole proprietorship –This is a business owned by one person.


  • Ease of formation: this is the easiest form of business organization to establish. There are no complex forms to complete and no documentation required between you and any other party. It involves registering your choice of business with the registrar of companies by filling in a simple form and paying a small registration fee.
  • Easy to raise capital.
  • Owner makes independent decisions: the business owner has complete control over the business is solely responsible for all decisions in the business.
  • Owner has personal contact with employees and customers.
  • Owner enjoys all the profits.
  • Flexibility: the business owner is able to respond quickly to business needs in day-to-day management decisions of the business. One can easily take advantage of an attractive business opportunity.
  • Total control of business


  • Bears all the losses.
  • Capital base may be limited: This kind of business has less financing capacity. The amount of funds a sole proprietor can raise is limited to their assets and their credit worthiness.
  • Has unlimited liability: The business owner has little or no protection against personal liability in the event of bankruptcy or adverse legal judgement. Personal assets such as the owners house, land, car and investments are liable to be seized if necessary to pay outstanding debts.
  • Success of the business depends on the entrepreneur’s hard work.
  • Business operations can be affected by death of the owner.



A partnership is an association of two or more persons who come together to carry on a business with a view to making profit. Although it is possible to establish a valid partnership without a formal agreement, it is advisable to sign an agreement first. The agreement will state:

  • The effective date of the partnership.
  • The business name of the partnership.
  • The contributions of capital by each partner
  • How the business profits and losses will be shared.
  • How a partner may withdraw from the partnership
  • How the business assets and liabilities will be shared in the event of a dissolution.


  • Capacity for more capital; partners can raise more capital than a sole trader. The asset base is much higher.
  • Work is divided among partners.
  • Better combination of skills and talents: for example, a mechanic and driver could successfully combine resources and talents to start a driving school.
  • Losses and liabilities are shared among partners.
  • Business can easily expand.
  • Formation of the business is simple: the registration and legal formalities are easy and simple.


  • The liability of partners is unlimited.
  • Partners are likely to disagree on various matters affecting the business.
  • If one partner makes a mistake, all other partners suffer the consequences.
  • Some partners may work harder than others, yet the profits are shared. This may discourage a hard working partner.
  • If the business relies heavily on one partner and the partner leaves or dies, the firm can easily collapse.
  • Control is shared

iii)        Private limited company – It is formed by a minimum of two shareholders

and a maximum of fifty.


  • Can raise more capital through sale of shares.
  • It has limited liability.
  • Death of a shareholder does not affect its operations.
  • They are managed by professionals.


  • Shareholders can only transfer their shares with the consent of other shareholders.
  • The company is not allowed to appeal to the public for extra capital, so it may find it difficult to raise money for expansion.
  • Accounts of the company must be filed annually with the registrar of companies.

iv)Public limited company – It has a minimum of seven shareholders and no

maximum number of shareholders



  1. Shareholders liability is limited to the amount contributed.
  2.  It can raise more funds through sale of shares.
  3. There is no restriction on the transfer of shares.
  4. Public companies can easily expand due to large capital base.



  1. The procedure of forming the company is long and complicated.
  2. Raising capital can be expensive due to the cost involved.
  3. As the company grows it may be difficult to manage.
  4. Once established it has to comply with many regulations.
  5. The accounts of a public company must be published, so there is no secrecy or privacy about its affairs.
  6. Owners exercise little control over the business.


  1. v) Co-operative – It is formed by people with a common interest such as those in the same trade or dealing in similar commodities.



Challenges faced when starting a small business

  1. Estimating market demand
  2. Estimating start –up capital and operating expenses
  • Meeting collateral requirement – obtaining money to adequately fund the start –up
  1. Meeting legal requirements
  2. Financial institutions are redundant to lend to start –ups
  3. Identifying reliable source of supply
  • Lack of entrepreneurial skills, business management skills and technical
  • Selecting a suitable business location
  1. Deciding on the type of business ownership


`Business life cycle

Insert diagram

Business Life Cycle: 5 Stages of Small Business

In the small business life cycle not every business will go through every stage, and not all small businesses will succeed as a result of these stages. However, they are proven stages or small business that are an important part of running a small business, whether from home or from a formal office.

Stage One

The first stage of any small business is obvious – establishment. At this stage, the business is being created, planned and the early days of its operations take place.

For some, this is the only stage that a small business may see, as it is by far one of the most difficult to survive. Many things can go wrong at this stage; thus, good business planning a crucial and necessary part of it.

Without a good business plan, it is impossible to get a small business off the ground, running and eventually moving through to the next stages of its life cycle.

Stage Two

The second stage of small business in the small business life cycle is the growth period.

During this stage, a business has an initial time of negative profit until it breaks even and begins to show increased revenues that allow it to truly grow. This is also the stage that the real test of a business comes into play.

How the business is managed and how it is able to compete within its designated market will determine whether it will survive, heading to the next stage – or whether it will decline and reach the last stage of its life.

Stage Three

The third stage of small business is about expansion. This is the point at which a business gets to the point where there is sufficient revenue being brought in so that there are no doubts of its survival and it can expand its horizons.

This includes taking on staff, expanding the office space of the business or even investing in equipment to deal with a larger base of clientele. This stage also entails producing more products if necessary.

Stage Four

The fourth stage of small or other business is about maturity.

The business is now stable enough to survive most unforeseen circumstances. It has enough backing, capital and support to ensure that even if the market becomes unstable, it can pull through.

This may be accomplished by rearranging its management plan, getting rid of one product to replace another or adding an additional product to an already existing product line.

However, if the market declines, it may survive, though its profits may take a temporary slide backwards.

Stage Five

In the small business life cycle the fifth stage of small business, is about decline. In fact, it is the easiest stage to reach for any business because it is the point where a starting business will fail.

An existing business, even a mature one, can decline in profits, take heavy losses and eventually either fail or cease operations to avoid further losses. As any small business owner can attest to, the stages of business are necessary and a normal part of the small business life cycle.




Regulations Affecting Business

  1. Legal registration e.g. registration of business names
  2. Tax compliance e.g. VAT, income TAX, PAYE
  • Trade license e.g. single business permit
  1. Public health inspection
  2. Environmental requirements e.g. NEMA
  3. Registration with relevant government department e.g. Ministry of Fishery, Livestock, Training
  • Social Security requirement e.g. NSSF
  • Zoning regulation e.g. Industrial zone
  1. Code of conduct



Business support services available for small businesses.

In order to increase chances of survival small businesses need to identify firms that offer support services where they can get help with the running of the business. Some of the support services for small enterprises include:


  1. Training services

This is necessary to improve capital in entrepreneurial, management and technical skills

  1. Marketing services

To determine market demand and provide market linkages

  1. Business counseling

This will help improve management. Capacity of small business owners in effective planning, implementation and control of business operations

  1. Banking services

This enables businesses to build credibility, reduce risks of handling cash and save funds for future use.


  1. Insurance services

Insurance firms are important for small business as it enables them reduce risks associated with operating businesses.


  1. Postal services

To facilitate effective and affordable communication

  1. Book keeping

To ensure business records are accurate and up to date and that the organization is tax compliant.


  1. Business incubators

To provide a nurturing environment for small businesses through the provision of a wide range of business support services such as training, marketing assistance, networking, tax preparation.

  1. Technology provision

Enables small businesses to embrace appropriate and affordable technologies e.g. Agriculture Technology Development Centers, Kenya Industrial Research and Development Institute ( KIRDI)


Before you start-basic checklist





  1. Are you a self-starter?
    yes q            no q
  2. Are you willing to work harder than you’ve ever worked before and for long hours without the security of as steady paycheck?
    yes q            no q
  3. Can you afford to work without knowing how much money – or success – you’ll ultimately earn?
    yes q            no q
  4. Are you ready to make tough decisions on your own?
    yes q            no q
  5. Do you know when you’re “in over your head” and need outside help?
    yes q            no q
  6. Are you willing to seek outside help? Do you know where to find it?
    yes q            no q
  7. Can you deal effectively with other people?
    yes q            no q
  8. Are you an effective leader, motivator, and communicator?
    yes q            no q
  9. Are you willing to delegate authority and responsibility to others?
    yes q            no q
  10. Are you willing to admit it when you’re wrong?
    yes q            no q
  11. Do you project a professional image to your clients and customers?
    yes q            no q
  12. Can people trust what you say?
    yes q            no q
  13. Can people trust you to do what you say you will do?
    yes q            no q
  14. Do you have managerial experience?
    yes q            no q


  1. Do you have the technical skills you will need to operate your particular business?
    yes q            no q
  1. Do you have the business skills you need to run a business?
    yes q            no q
  2. Do you know your strengths and weaknesses?
    yes q            no q
  3. Do you have business partners or advisors who can compensate for your weaknesses?
    yes q            no q
  4. Have you worked in a business like the one you want to start?
    yes q            no q
  5. Have you researched your business thoroughly?
    yes q            no q
  1. Do you read a lot about your business and its industry?
    yes q            no q
  2. Are you a good listener?
    yes q            no q


  1. Is your product or service idea unique?
    yes q            no q
  2. Does it serve a customer need or want?
    yes q            no q
  3. Have you defined the competitive advantage your product or service offers ?
    yes q            no q
  4. Do you know what your product or service will cost you?
    yes q            no q
  5. Have you defined the “image” you want your product or service to have in the marketplace?
    yes q            no q
  6. Can competitors easily copy your product or service?
    yes q            no q
  7. Have you located suppliers who will sell you what you need at a reasonable price?
    yes q            no q


  1. Have you evaluated the various forms of ownership to determine which one is best for you?
    yes q            no q
  2. If you have chosen to form a sole proprietorship, can you afford the unlimited personal liability?
    yes q            no q
  1. If you have chosen to form a partnership, have you created a partnership agreement?
    yes q            no q
  2. If you have chosen to form a partnership, have you determined which partners are general partners and which are limited partners?
    yes q            no q
  3. If you have chosen to form a partnership, have you determined how a partner can leave the business?
    yes q            no q
  4. If you have chosen to form a partnership, have you determined how you will settle disputes?
    yes q            no q
  5. If you have chosen to form a corporation, have you filed the articles of partnership with the appropriate state?
    yes q            no q
  6. If you have chosen to form a corporation, are you willing to tolerate the “double taxation” of this form of ownership?
    yes q            no q
  7. Have you considered the Limited Liability Company (LLC) as a form of ownership?
    yes q            no q
  8. If you have chosen to form an LLC, have you filed both the articles of organization and the operating agreement with the proper state?
    yes q            no q
  9. If appropriate, have you filed a patent application with the U.S. Patent and Trademark Office for your product?
    yes q            no q
  10. Have you given your business, product, and service names proper trademark protection?
    yes q            no q
  11. If the answer to question #42 is “Yes,” are you using the trademark properly?
    yes q            no q
  12. If your business is built around original works of authorship, have you protected them with a copyright?
    yes q            no q


  1. Have you defined the core values that will guide your business?
    yes q            no q
  2. Do you have a well-articulated, meaningful mission statement for your business?
    yes q            no q
  3. Have you assessed your company’s strengths and weaknesses?
    yes q            no q
  4. Have you identified the key opportunities and threats facing your business?
    yes q            no q


  1. Do you know what the key success factors are for your business?
    yes q            no q
  2. Have you analyzed your competition well enough to know their strengths and weaknesses?
    yes q            no q
  3. Have you established meaningful goals and objectives for your company?
    yes q            no q
  4. Have you formulated a clear, coherent strategy that will serve as your company’s “game plan”?
    yes q            no q
  5. Have you created specific tactics to implement your company’s strategy in the marketplace?
    yes q            no q
  6. Have you established accurate control systems that will give you feedback on how well your strategy is working and how well your business is doing?
    yes q            no q


  1. Have you evaluated key economic trends and how they will affect your business?
    yes q            no q
  2. Have you evaluated key technological trends and how they will affect your business?
    yes q            no q
  3. Have you evaluated key sociopolitical trends and how they will affect your business?
    yes q            no q
  4.   Have you evaluated key demographic and lifestyle trends and how they will affect your business?
    yes q            no q
  5. Have you identified your company’s target market?
    yes q            no q
  6. Have you researched your target customers enough to know their likes, dislikes, wants, needs, and preferences?
    yes q            no q
  7. Have you determined the level of satisfaction your target customers have with existing products or services?
    yes q            no q
  8. Have you defined how you will create value for your customers?
    yes q            no q
  9. Do you know why your customers will want to buy your company’s product or service?
    yes q            no q


  1. Have you developed a marketing strategy that is customer-focused?
    yes q            no q
  2. Have you developed specific practices to implement this strategy?
  1. Have you developed a marketing strategy that will produce a quality product or service for your customers?
    yes q            no q
  2. Have you developed specific practices to implement this strategy?
    yes q            no q
  3. Have you developed a marketing strategy that is focused on providing customer convenience?
    yes q            no q
  4. Have you developed specific practices to implement this strategy?
    yes q            no q
  5. Have you developed a marketing strategy that will generate innovations in your product or service over time?
    yes q            no q
  6. Have you developed specific practices to implement this strategy?
    yes q            no q
  7. Have you developed a marketing strategy that exploits speed as a competitive advantage?
    yes q            no q
  8. Have you developed specific practices to implement this strategy?
    yes q            no q
  9. Have you developed a marketing strategy that is built on customer service?
    yes q            no q
  10. Have you developed specific practices to implement this strategy?
    yes q            no q
  11. Do you know what stage of the product life cycle your product or service is in?
    yes q            no q
  12. Have you identified the channels of distribution you will use to get your product or service to your target customers?
    yes q            no q
  13. Have you established a price that will be reasonable to customers, profitable for your business, and will create the image you want in the marketplace?
    yes q            no q
  14. Have you determined which advertising media will be most effective in reaching your target audience?
    yes q            no q
  15. Have you identified the unique selling position that you will build your advertising messages around?
    yes q            no q
  16. Do the ads you are planning to run answer the customer’s question, “Why should I consider buying this product or service?”
    yes q            no q


  1. Have you created projected income statements for three years for your business?
    yes q            no q
  2. Have you created projected balance sheets for three years for your business?
    yes q            no q
  3. Have you developed estimates for your one-time startup expenses?
    yes q            no q
  4. Have you developed estimates for your on-going business expenses?
    yes q            no q
  5. Can you analyze your company’s financial statements using ratio analysis?
    yes q            no q
  6. Do you know what your company’s breakeven point is?
    yes q            no q
  7. Have you reworked your startup cost estimates to see if you can lower your breakeven point?
    yes q            no q
  8. Do you know how long your company’s cash flow cycle is?
    yes q            no q
  9. Have you developed a cash budget for your company’s first year of operation using a pessimistic, optimistic, and most likely sales forecast?
    yes q            no q
  10. Have you developed a plan for collecting your accounts receivable promptly?
    yes q            no q
  11. Have you set up a functional system for paying your accounts payable on time?
    yes q            no q
  12. Have you set up a system for monitoring your company’s inventory?
    yes q            no q
  13. Do you know how much inventory you should have?
    yes q            no q
  14. Have you developed a plan to avoid the “cash crunch?”
    yes q            no q


  1. Have you developed a complete business plan for your company?
    yes q            no q
  2. Does your plan include the “5 M’s’ – Market, Methodology, Management, Money, and Menaces?
    yes q            no q
  3. Have you scored your plan on the Business Plan evaluation Scale?
    yes q            no q


  1. Do you know how much money it will take to launch your business, and have you included a little extra for “Murphy’s Law”?
    yes q            no q
  2. Do you understand the implications of both debt and equity capital to your business?
    yes q            no q
  3. Have you identified family members and friends who might be willing to finance your business?
    yes q            no q
  4. Have you identified potential angels who might be willing to finance your business?
    yes q            no q
  5. Is your business a possible candidate for a simplified registration or exemption for a public offering?
    yes q            no q
  6. Have you established a business relationship with a banker?
    yes q            no q
  7. Have you answered the seven questions every entrepreneur should be able to answer before approaching a banker for financing?
    yes q            no q
  8. Have you considered other forms of debt financing?
    Trade credit?
    q             q
    Equipment suppliers?
    q             q
    Commercial finance companies?
    q             q
    Savings and Loans?
    q             q
    Stock brokers?
    q             q
    Insurance companies?
    q             q
    Credit unions?
    q             q
    The Small Business Administration?
    q             q
    State and local development programs?
    yes q            no q


  1. Have you studied the demographics of your proposed location and matched them against the profile of your target customer base?
    yes q            no q
  2. Have you analyzed data from Census reports concerning your location?
    yes q            no q
  3. Have you calculated the index of retail saturation for your proposed location?
    yes q            no q
  4. Have you evaluated the site in terms of the level of competition, retail compatibility, and other factors unique to your business?
    yes q            no q
  5. Have you evaluated building, buying, and leasing a building to house your business?
    yes q            no q


  1. Have you developed a human resources plan for your business?
    yes q            no q
  2. Have you created job descriptions and job specifications for each job in your company?
    yes q            no q
  3. Have you developed a recruiting strategy to get the workers you need?
    yes q            no q
  4. Have you developed a job application form that will give you the information you need about candidates and will avoid charges of discrimination?
    yes q            no q
  5. Have you developed interviewing questions that will give you the information you need about candidates and will avoid charges of discrimination?
    yes q            no q
  6. Have you developed a plan for orienting and training your employees on a continuous basis?
    yes q            no q
  7. Have you developed a compensation plan that is equitable and motivating to employees?
    yes q            no q
  8. Have you developed a plan for evaluating your employees’ performances regularly?
    yes q            no q
  9. Have you developed a procedure for documenting employees’ performances in case you must fire them?
    yes q            no q






Any business large or small must apply managerial skills in order to come up with decisions that are practical. These decisions involve the utilisation of business resources so as to achieve organisational goals.

This chapter will introduce to the trainees the basic functions of management such as planning, organising and controlling for effective and efficient utilisation of business resources.


Definition of the term management


  • Doing things through others
  • Activities carried out by an organisation to achieve its objectives
  • Planning, directing and controlling available resources to meet the desired results.

Functions of management in an enterprise

Management is necessary because resources are scarce and factors such as employees , technology costs keep changing.


Effectiveness is the ability to obtain the intended results, while efficiency is accomplishing the objectives by utilising minimum resources.


Management functions involve planning, organising, coordinating, controlling and directing a business.


  1. Planning

Planning is necessary for commitment of organisation resources. It involves deciding in advance the actions to be taken, when and how. Planning involves setting of objectives and goals to be achieved and deciding which activities should be carried out to achieve them. In planning the manager needs to involve the other employees to get their commitment in achieving the set objectives.

  1. Organising

A manager must delegate tasks to others since he cannot do everything. These employees must have the resources to be able to perform tasks effectively. The manager is therefore responsible for organising people and resources in a manner that facilitates achievement of organisations objectives.

  • Directing

Directing is influencing other people towards achieving organisation goals. It involves guiding, leading, supervising and motivating others to achieve set targets and deadlines.


  1. Controlling

Controlling involves checking the progress made towards the desired goal and correcting deviations that may occur. The manager must try to measure and evaluate the work of all individuals and groups to make sure that they are on target.


  1. Coordinating

Coordinating involves working together. A manager must coordinate the various departments in the organisation to ensure smooth running of organisation activities. This can be done through regular meetings.


  1. Leadership/motivation

Leadership involves directing human resource for optimum contribution. A good leader works with his staff as a team. As a team leader the manager must motivate his staff and take care of them. He should be able to tap and fully exploit the potential of those he leads.



  • Decision Making

All the management functions discussed above involve decision making. The manager should make sound decisions for the smooth flow of the business. Not all decisions made in a business have equal importance.



Decisions can be divided into:

  1. Strategic decision – These are very important decisions that can affect the overall success of the business. These are rarely taken (made) and could include: future plans, change of status, long term investment etc.


  1. Tactical decision – These are taken more frequently and are less important. They could include: ways of training staff, methods of advertising, types of machine to purchase etc. these decisions can be made by middle management.



  • Operational – These are day to day decisions taken by lower level management. Examples include: staffing levels, stocking levels, methods of delivery of goods etc.


Qualities of a good manager

To be a good manager one should have the following qualities

  1. Intelligence – to enable him understand difficult ideas and deal with varied issues.
  2. Initiative – to enable him get solutions to problems and take control of situations
  • Self confidence – to be able to lead others and set an example
  1. Communication skills – to clearly pass ideas to others to enable them to respond positively
  2. Energy and enthusiasm – to set high standards of effort and involvement to encourage others to follow his example.




In many businesses, the cost of purchasing merchandise for resale(retailing) or the costs of purchasing and converting materialsinto finished products (manufacturing) represent the business’smost significant expenditures. Keeping track of merchandise andmaterials, known as inventory, is important because of theconsiderable costs involved. This can be accomplished through agood inventory record keeping system.


Inventory Record Keeping


Inventory record keeping establishes and maintains information oncurrent inventory, the additions and withdrawals to inventory andinventory balances at the end of specified periods (week, month,

etc.). These records identify the products/materials, thequantities and the value (cost) of these products/materials.


Inventory Strategies


Every business competes within an industry and each industry hasa life cycle. The strategies employed by the business depend onwhere in the life cycle the industry is. The management of

inventories is influenced by this life cycle.Generally, there are four stages in the life cycle of an

industry. These are as follows:


*  Development – Uniquely new products are being developed and market tested. Products must be available for market  testing. There is little concern about inventory

investment, other than to be sure products are available

for market testing and development.


*  Growth – The product has been demonstrated to have

significant market potential and the business strives to

gain a major market share. Investment in inventory is heavy

to ensure product availability to gain significant market



*  Maturity – Growth has leveled off. Inventories are very

closely controlled to keep investment in them just

sufficient to maintain market share.


*  Aging – A period of retrenchment as competitive industries

take away or eliminate markets. Inventories decline as

unprofitable and marginally profitable segments of the

business are weeded out.


The proper control of inventories is essential to the success of

any business in which investment in inventories is significant.

Awareness of the competition and the state of new product

development is just as important as a finely honed record-keeping

system. While the record-keeping system is important, how it is

applied will determine the success of the business.





One of the keys to successful businesses is the employment and retention of the right people. However the employment of staff also brings with it legal obligations, including:

  • Provision of a safe working place as per the Occupational Health and Safety Act;
  • The need to have a policy dealing with discrimination and harassment in the workplace;  and
  • Payment of minimum wages and provision of conditions.

Employment Conditions

All employers have certain legal obligations to their employees, including:

  • paying correct wages;
  • ensuring a safe working environment;
  • supporting an anti-discriminatory and anti-harassment workplace;
  • taking out workers compensation insurance;
  • paying superannuation contributions;
  • paying a range of employee-related taxes.

Employees may be entitled to:

  • a range of leave entitlements;
  • notice of termination and severance pay;
  • protection from unfair dismissal or unlawful termination.

All employers in Kenya are required to comply with, and exhibit a copy of, all relevant awards applicable to their workplace.

To motivate and retain staff:

  • Try to pay staff electronically or by cheque – avoid cash.
  • Introduce staff incentives that encourage sales.
  • Acknowledge staff performance and encourage good working morale.
  • Determine the reason for staff turnover, if applicable.
  • Identify training needs of staff and encourage ongoing learning.
  • Be aware of occupational health and safety (OH&S) issues and have risk management policies and processes in place.
  • Ensure that staff and clients have facilities that will enhance relationships and satisfaction levels.
  • Review the decor and layout of your premises to ensure that you are conveying the most professional and appealing image to clients.


Personnel Selection

If your business will be large enough to require outside help, an important responsibility will be the selection and training of one or more employees. You may start out with family members or business partners to help you. But if the business grows – as you hope it will – the time will come when you must select and train personnel.

Careful choice of personnel is essential. To select the right employees determine beforehand what you want each one to do.

Then look for applicants to fill these particular needs. In a small business you will need flexible employees who can shift from task to task as required. Include this in the description of the jobs you wish to fill. At the same time, look ahead and plan your hiring to assure an organization of individuals capable of performing every essential function. In a retail store, a salesperson may also do stock keeping or bookkeeping at the outset, but as the business grows you will need sales people, stock keepers and bookkeepers.

Once the job descriptions are written, line up applicants from whom to make a selection. Do not be swayed by customers who may suggest relatives. If the applicant does not succeed, you may lose a customer as well as an employee.

Some sources of possible new employees are:

  1. Recommendations by friends, business acquaintances.
  2. Employment agencies.
  3. Placement bureaus of high schools, business schools, and colleges.
  4. Trade and industrial associations.
  5. Help-wanted ads in local newspapers.

Your next task is to screen want ad responses and/or application forms sent by employment agencies. Some applicants will be eliminated sight unseen. For each of the others, the application form or letter will serve as a basis for the interview which should be conducted in private. Put the applicant at ease by describing your business in general and the job in particular. Once you have done this, encourage the applicant to talk. Selecting the right person is extremely important. Ask your questions carefully to find out everything about the applicant that is pertinent to the job.

References are a must, and should be checked before making a final decision. Check through a personal visit or a phone call directly to the applicant’s immediate former supervisor, if possible. Verify that the information given you is correct. Consider, with judgment, any negative comments you hear and what is not said.

Checking references can bring to light significant information which may save you money and future inconvenience.

Personnel Training

A well-selected employee is only a potential asset to your business. Whether or not he or she becomes a real asset depends upon your training. Remember:

  • To allow sufficient time for training.
  • Not to expect too much from the trainee in too short a time.
  • To let the employee learn by performing under actual working conditions, with close supervision.
  • To follow up on your training.

Check the employee’s performance after he or she has been at work for a time. Re-explain key points and short cuts; bring the employee up to date on new developments and encourage questions. Training is a continuous process which becomes constructive supervision.

Personnel Supervision

Supervision is the third essential of personnel control. Good supervision will reduce the cost of operating your business by cutting down on the number of employee errors. If errors are corrected early, employees will get more satisfaction from their jobs and perform better.

Motivating Employees

Small businesses sometimes face special problems in motivating employees. In a large company, a good employee can see an opportunity to advance into management. In a small company, you are the management. One thing you may wish to consider is to give good employees a small share of the profits, either through part ownership or a profit-sharing plan. Someone who has a “share of the action” is going to be more concerned about helping to make a success of the business.

Simpler ways of motivating employees include:

  • Introduce staff incentives that encourage sales.
  • Acknowledge staff performance and encourage good working morale.
  • Determine the reason for staff turnover, if applicable.
  • Identify training needs of staff and encourage ongoing learning.
  • Be aware of occupational health and safety (OH&S) issues and have risk management policies and processes in place.
  • Ensure that staff and clients have facilities that will enhance relationships and satisfaction levels.
  • Review the decor and layout of your premises to ensure that you are conveying the most professional and appealing image to clients.




Cash shortages can prevent you from meeting your financial obligations and make it difficult to expand your business.  In some cases it will mean you will need to close your business. It is important to know your cash flow position.  To manage your cash flow, take note of the following tips.



Account for Every Shilling and Cent

  • Install an accounting system that produces relevant financial reports and meets tax requirements.
  • Keep your financial records and bookkeeping up to date.
  • Use the information in your accounting system to draw up a budget and cash flow forecast.
  • Manage your cash inflow and outflow – be prepared for anticipated tax installments and other payments.
  • Do your banking regularly, both for security reasons as well as keeping track of your cash flow.
  • Reconcile your bank statements regularly, double-checking receipts and payments with your own records.
  • Ensure that you receive record and retain all tax invoices for taxable purchases to support your claim for tax credits.
  • Consider visiting your accountant every three months to review your business performance.

Other Important Factors

  • Bill your customers early and often.
  • Keep a detailed account of all your debtors and act promptly on overdue accounts.
  • Promptly follow up any dishonoured cheques.
  • Consider offering discounts for cash sales or early payments of credit purchases.
  • Consider alternatives to improve your sales terms, eg lay-by terms, payment terms, credit terms.
  • Keep a detailed list of amounts that you owe.  Your debts may build up without your knowing.
  • Use payable credit terms to your benefit, increasing the effectiveness of your cash flow.
  • If suppliers want to be paid early, ask about discounts for early payments.
  • Manage your investment debt.  Don’t over-borrow.
  • Keep some cash for rainy days.
  • Don’t over-commit your personal expenses.



Time management is critical to the achievement of organization goals. Projects or activities delayed due to poor time management can cost the company in terms of poor image and loss of business opportunities due to being perceived by customers as unreliable.


Benefits of Time Management

Proper time management has several benefits.

  • It conserves time allowing for the completion of many more projects or activities.
  • Proper time management ensures greater organization and therefore smoother operations
  • Reduces anxiety and stress
  • Motivates and organizes employees
  • Reduces avoidance or procrastination
  • Eliminates crisis management


Factors influencing the use of time

The use of time is influenced by the following factors:


  • Goals, values, standards – whether or not one values time.
  • Responsibilities – Many responsibilities require proper time management to complete tasks.
  • Abilities:
  • to plan, organize, perform a task
  • to manage time


Managing Time Effectively

Rules for managing time effectively include the following:


  • Realistic time plan
  • Decisive – focus on the tasks at hand
  • Leave unnecessary jobs out
  • Delegate to competent employees
  • Work faster
  • Reward yourself and employees after successful completion of important tasks.
  • Avoid procrastination
  • Develop habits that save you time.


To-do Lists

Prepare to-do lists to ensure that you do the following;


  • Keep track of performance
  • Prioritize tasks – Important ones first
  • Focus on current task
  • Plan and ensure completion


Making a Written Time Plan

A written time plan will enable you to prepare accurate to-do lists.

Your time plan should be:


  • Simple to implement
  • Complete – include all that is necessary to complete required tasks
  • Flexible – able to be adapted to changing needs
  • Workable – Give adequate time to each task
  • Prioritize tasks according to importance rather than urgency.




The use of technology is important because it increases labour productivity and this in turn increases local competitiveness for both consumer and producer. Technology selected by entrepreneurs should favour locally produced tools and equipment. This makes it easier to maintain them and replace them wwhen necessary.


Characteristics of appropriate technologies:


Simple: It must be simple to operate, with minimal adjustment problems..


Effectiveness: The technology should be judged by how well it fits in with the objectives of the user.

Availability: The technology should be easily available locally.

Flexibility: The technology selected must be able to adapt to changing times and technologies e.g. upgrades.

Durable: Technology that is durable requires less maintenance and repairs.

Efficient: It should be efficient in utilization of resources.

Cost Effective: The cost of technology should be justified by it’s overall benefits. Benefits should outweigh costs.


Emerging issues and trends

  1. Technological advances
  2. Open office







The success of business enterprise is determined by the ability of the entrepreneur to control the financial resources of the business. An entrepreneur should maintain a sound system of accounting records as this would aid in determining whether the business is making profit or  a loss. This is necessary for decision making.


This sub-module unit covers sources of business finance, recording of business transactions and preparation of financial statements.


Meaning of financial management

This is the process of controlling the financial resources within a business     enterprise.  In order for the entrepreneur to be an effective manager he needs to develop tools that aid in decision making. Some of the tools that can be used are:

  • Cash budgets
  • Cash flow statements
  • Income statements and a balance sheet



Importance of financial management

Financial management is important because:-

  • It helps in planning business activities
  • Decisions can be made to make any necessary corrections where there’s need.
  • Evaluation of performance is necessary and proper management can be aided by the tools that have been used.
  • Efficiency of use of resources and capital can be determined.



Sources of business finance

A business enterprise can finance its operation from various sources. These vary with the size of the business and the stage of growth. Sources are categorised as either internal or external. Internal sources are generalised within the business while external sources are acquired from other parties.


Examples of internal sources are:-

  • Personal finance- personal savings are a major source of capital during the start-up stage. The personal savings may be obtained from former employment, money saved in savings/ fixed deposit accounts, sale of personal assets such as land.

Advantages of this source are:

  • It is the least expensive since no interest is paid.
  • It does not involve legal process of acquiring
  • It allows for flexibility on the use of funds


  • It may be inadequate for business needs.
  • May be used without proper planning.
  • May take too long to raise adequate capital.
    • Retained earnings – These are the unutilized profits from previous years which can be used to finance other needs such as expansion and acquisition of more assets.
    • Provision for depreciation and provision for taxation – These can only be borrowed for a short period of time before replacement of depreciated assets or payment due to taxes that are made .
    • Sale and lease back – A business can opt to sell its assets and then lease the same from the new owner. It will be paying rent for use of the assets.
    • Sale of assets – A business could have at its disposal assets that can be converted into cash. Good examples of such assets are old equipment, motor vehicles and other chattels.



External sources of business finance.

This type of finance is obtained from persons and parties other than the business owners.

Examples of external sources are:-


  1. Trade creditors – these provide a business with goods on credit terms such as 90 days before repayment can be made.

The entrepreneurs can sell the goods and use the proceeds to pay off the creditor on the due date.

  1. Loans – these are borrowings from commercial lending institutions. The terms and institutions vary from one institution to another.
  2. Overdrafts – These are short term sources of finance from commercial banks that a business can resort to in order to solve its liquidity problem. The repayment period is normally one year.
  • Hire Purchase – a business can get equipment from a hire purchase firm and pay for them in installments until the whole line purchase price is paid. It becomes the property of the business when the last installment is paid, otherwise it was on hire before such last payment.


Types of Business Records


There are various types of records that may be maintained by a business depending on the size of the business. The following are some of the important business records:


  1. Purchases journal.

This is a record of all daily purchase of stock on credit. It keeps a record of daily purchase of stock on credit. It keeps a record of persons from whom a business has purchased on credit.

It’s also referred to as the purchases day book.




ii)Sales journal.

This is used to record all the daily credit sales. It shows the particular persons to whom goods have been sold on credit. It is also known as the sales day book.

iii)Purchases returns journal 

It provides a list of goods returned outwards to supplies. Goods may be returned for reasons such as, they are defective, wrong type of quantities or description supplied, or goods damage on transit.


iv)Sales returns journal

It provides a list of goods returned inwards to the business by the customers.


v)The cash book.

This is the book in which all the receipts and payments are made. There are different types of cashbooks that a business may maintain. These include one column, two columns or three columns cash book. The petty cash book and analysis cash book may also be maintained.

vi)The ledger


All accounts of assets, liabilities, capital, revenue and expenses are maintained in a book known as the ledger. An account- a chronological entry of all transactions affecting a given item or person.

Recording transactions in the ledger is made based on the concept of double entry which means that ever transaction must have at least two effects and should therefore be recorded twice.



Recording business transactions in the books of accounts


Business transactions refer to the exchange of goods and services. Many transactions take place in a business on a daily basis. Such transactions include: purchase of goods, selling of goods , payment of expenses, return of goods, payment of expenses, return of goods bought, purchase of assets, receipt of payment from debtors among others. These transactions are recorded in the books of account in order to aid in preparation of financial statements at the end of the year. Business transactions are recoreded in different books of accounts. These include:

  1. The journals such as purchases journal, sales journal, returns journal, general journal
  2. The ledger
  3. The cash book





Financial statements are important for the entrepreneur in determining whether the business is operating at a profit or a loss and the financial wealth of the business. Two major financial statements the entrepreneur requires for sound decisions are:

  1. Trading, profit and loss accounts
  2. The balance sheet


Trading, profit and Loss Account

The financial statement is prepared to determine whether a business is operating at a profit or  a loss for a given period of time. E.g. one year


Trading Account

The trading account is prepared to determine the gross profit. The gross profit is the difference between the net sales and the cost of sales



Trading Account Format


Opening Stock                          ×××××

Purchases                     ××××

Less returns                 ×××× ××××


Less closing stock                    ××××

Cost of sales                             ××××

Gross profit c/d                        ××××


Sales                         ××××

Less returns               ××××







Gross profit b/d         ××××



NB:Gross profit is the difference between Net Sales and Cost of sales





As financial statements have been worked out, it is necessary to compare the relationship between items in the balance sheet and those in the profit and loss account. This gives a clearer picture of the company’s performance in relation to the prevailing economic conditions.


The interpretation can be in the form of ratios, or percentages showing different relationships. They are categorised into:

  1. Profitability ratios
  2. Turnover ratios
  • Return ratio

Examples of such interpretations are as follows:

Profitability ratios

  • Current ratios

This is used to gauge the ratio of current assets compared to current liabilities. It is computed as:      Current Assets (CA)

Current Liabilities (CL)

  • Gross profit to sales or the gross profit margin

Gross profit is given by sales less cost of sales. Gross profit to sales is worked as follows:

Gross Profit × 100


It gauges the efficiency with which the company can generate a given level of profits out of its sales activities.

  • Rate of Stock Turnover

This is an activity ratio that shows the number of times that stock is converted into sales on the average. It is calculated by dividing the cost of sales by the average stock held during the year.


Rate of stock turnover =                Cost of sales______________ = _____ times

(Opening stock + closing stock )


  • Debtors ratio

This is another activity ratio that shows the average credit period allowed to debtors.



Debtors ratio = __Debtors       X   365 = ______________     days




  • Creditors ratio

Like the debtors ratio, the creditors ratio shows the average credit period allowed by creditors.


Creditors ratio =    creditors___   X   365   =   ________________ days


  • Net profit margin

It gauges the company’s overall efficiency. It is given by:

Net Profit × taxes   X 100


  • Return on capital employed

It gauges the managements efficiency in utilising the capital employed.


The computation is thus: Net profit before taxes__X  100

Total capital employed


Importance of Budgeting to a Business

Budgeting is important to a business in the following ways:-

  1. The success or failure of a business depends on the decisions that are mad e
  2. Budgeting helps to remove future uncertainties as it combines activities with resources
  • It helps the entrepreneur to remain focused on the goods
  1. Resources are acquired when they are needed and therefore there is no time lost waiting
  2. It facilitates long term planning within the business.






Marketing is an important aspect of business management. It is through marketing that a business creates awareness about its products. An entrepreneur must endeavour to create awareness and interest to customers about the products that his/her business deals with.

This sub-module unit deals with definition of the terms market and marketing, components of marketing and methods of gathering market information


A market refers to conditions that bring sellers and buyers together. This may be a physical location or any other medium such as electronic or print. A market can also be a group of consumers or an organisation that are interested in a product, have the resources to purchase the product, and is permitted by law and other regulations to acquire the product. The market definition begins with the total population and progressively narrows as shown in the following diagram.

Marketing refers to the performance of business activities that direct the flow of goods and services from the seller to the consumer. It is an integrated process through which businesses create value for customers and build strong customer relationships in order to capture value from customers in return.

Marketing is used to identify the customer, to keep the customer and to satisfy the customer. With the customer as the focus of its activities, it can be concluded that marketing management is one of the major components of business management.


Components of marketing.

Market components are commonly referred to as marketing mix. Marketing mix consists of the following components:

  1. i) Product

Product refers to tangible, phyical products or services that a business offers for sale. During the product design and development, an entrepreneur must make decisions pertaining to the following:

  • Brand name
  • Functionality
  • Styling
  • Quality
  • Safety
  • Packaging
  • Repairs and Support
  • Warranty
  • Accessories and services
  1. ii) Place/ Distribution

Place refers to the actual location where the product is to be sold. It includes the activities that make the product available to target consumers. In this case, an entrepreneur must make decisions pertaining to:

  • Distribution channels
  • Market coverage (inclusive, selective, or exclusive distribution)
  • Specific channel members
  • Inventory management
  • Warehousing
  • Distribution centers
  • Order processing
  • Transportation
  • Reverse logistics

iii)        Price

Price is the unit value attached to a product i.e. the amount of money that customers have to pay to obtain the product. The entrepreneur in this regard must make decisions in relation to:

  • Pricing strategy (skim, penetration, etc.)
  • Suggested retail price
  • Volume discounts and wholesale pricing
  • Cash and early payment discounts
  • Seasonal pricing
  • Bundling
  • Price flexibility
  • Price discrimination
  1. iv) Promotion

Promotion is the process of letting buyers know about a product, how it is made, its benefits, cost, and quality among others.

It constitutes the activities that communicate the benefits of the product and persuade target customers to buy it. The marketing communication decisions include:

  • Promotional strategy (push, pull, etc.)
  • Advertising
  • Personal selling & sales force
  • Sales promotions
  • Public relations & publicity
  • Marketing communications budget


Limitations of the Marketing Mix Framework

The marketing mix framework was particularly useful in the early days of the marketing concept when physical products represented a larger portion of the economy. Today, with marketing more integrated into organisations and with a wider variety of products and markets, some authors have attempted to extend its usefulness by proposing other P, such as people, process and physical evidence.


This refers to the consumers for whom the goods and services are intended. There are various considerations made about the consumers in determining the suitability of the market mix to be used. (Figure. 12.1)

An effective marketing program puts together all the marketing mix elements.

Figure 12.1 showing the marketing mix elements






List price



Payment period

Credit terms



Product variety




Brand name
















Personal selling

Sales promotion







Tastes and Preferences

Population density



The other extended components of marketing mix include the following:


Refers to the systems used to assist the organisation in delivering the service. Imagine you walk into Burger King and you order a Whopper Meal and you get it delivered within 2 minutes. What was the process that allowed you to obtain an efficient service delivery? Banks that send out Credit Cards automatically when their customers old one has expired again require an efficient process to identify expiry dates and renewal. An efficient service that replaces old credit cards will foster consumer loyalty and confidence in the company.


Where is the service being delivered? Physical Evidence is the element of the service mix which allows the consumer again to make judgments on the organisation. If you walk into a restaurant your expectations are of a clean, friendly environment. On an aircraft if you travel first class you expect enough room to be able to lay down!
Physical evidence is an essential ingredient of the service mix, consumers will make perceptions based on their sight of the service provision which will have an impact on the organisations perceptual plan of the service.



Under the marketing concept, the firm must find a way to discover unfulfilled customer needs and bring to market products that satisfy those needs. The process of doing so can be modeled in a sequence of steps: the situation is analyzed to identify opportunities, the strategy is formulated for a value proposition, tactical decisions are made, the plan is implemented and the results are monitored.

The Marketing Process

Situation Analysis
Marketing Strategy
Marketing Mix Decisions
Implementation & Control



A thorough analysis of the situation in which the firm finds itself serves as the basis for identifying opportunities to satisfy unfulfilled customer needs. In addition to identifying the customer needs, the firm must understand its own capabilities and the environment in which it is operating.

The situation analysis thus can be viewed in terms an analysis of the external environment and an internal analysis of the firm itself.

The situation analysis should include past, present, and future aspects. It should include a history outlining how the situation evolved to its present state, and an analysis of trends in order to forecast where it is going. .

If the situation analysis reveals gaps between what consumers want and what currently is offered to them, then there may be opportunities to introduce products to better satisfy those consumers. Hence, the situation analysis should yield a summary of problems and opportunities. From this summary, the firm can match its own capabilities with the opportunities in order to satisfy customer needs better than the competition.

The two common frameworks  used to do the situation analysis:

  •  PEST analysis – for macro-environmental political, economic, societal, and technological factors. A PEST analysis can be used as the “climate” portion of the 5 C framework.
  • SWOT analysis – strengths, weaknesses, opportunities, and threats – for the internal and external situation. A SWOT analysis can be used to condense the situation analysis into a listing of the most relevant problems and opportunities and to assess how well the firm is equipped to deal with them.

Once the best opportunity to satisfy unfulfilled customer needs is identified, a strategic plan for pursuing the opportunity can be developed. Market research will provide specific market information that will permit the firm to select the target market segment and optimally position the offering within that segment. The result is a value proposition to the target market. The marketing strategy then involves:

  • Segmentation
  • Targeting (target market selection)
  • Positioning the product within the target market
  • Value proposition to the target market


Detailed tactical decisions then are made for the controllable parameters of the marketing mix. The action items include:

  • Product development – specifying, designing, and producing the first units of the product.
  • Pricing decisions
  • Distribution contracts
  • Promotional campaign development

At this point in the process, the marketing plan has been developed and the product has been launched. Given that few environments are static, the results of the marketing effort should be monitored closely. As the market changes, the marketing mix can be adjusted to accomodate the changes. Often, small changes in consumer wants can addressed by changing the advertising message. As the changes become more significant, a product redesign or an entirely new product may be needed. The marketing process does not end with implementation – continual monitoring and adaptation is needed to fulfill customer needs consistently over the long-term.




Before selling a product or service, it’s important to know the market that you will be entering into. Research includes finding out what potential customers need, want and don’t want, and why. Your goal is to build a demographic profile of your customers. A research or business library can prove helpful for studying the manners in which other small businesses have approached their target audiences. You can then take a similar approach, adding your own creativity and the particular benefits of your products or services.

Surveys, questionnaires, and focus groups are three among the many ways to obtain original data on potential customers. You can also get basic information when a customer calls for your services, visits your facility, or browses your web site. When customers make a purchase, or any kind of inquiry, you can find out where they heard about your business. In this manner you can better plan, and track, your marketing efforts.

Ways of gathering market information

Market information can be gathered through:

  1. i) Asking customers.
  2. ii) Reading relevant materials e.g. business pamphlets.

iii)        Getting information from chamber of commerce

  1. iv) Exhibitions/ shows/trade fairs.
  2. v) Listening to people talk.

Emerging issues and trends


  1. i) E – commerce – use of ICT, e.g. the Internet to market business activities and products.
  2. ii) Focusing on the customer needs or satisfaction

iii)        The need for meeting quality standards (KEBS)

  1. iv) The need to address environmental standards (NEMA)





Social responsibility consists of those obligations a business has to society. It also involves specific responsibilities and responsiveness to society. This requires obligation of businessmen to pursue those enterprise policies to make those decisions or to follow those lines of action which are desirable in terms of objectives and values to society.



Social responsibility refers to the fact that businesses should not just be concerned with profit maximisation but should do so in a socially responsible manner. This responsibility requires the management of the business to consider the social and economic effects of their decisions on society. Businesses should therefore pursue profit maximisation within acceptable moral limits.



Business ethics

Ethics concerns the rules and principles that define right and wrong good and bad conduct. Ethics also deals with moral ability and obligations.

Business ethics is also called management ethics and it is the application of ethical principles to business relationships and activities.

Statt (1999,19) sees business ethics as the application of ethical concerns to the world of business and has three areas of concern namely;

  1. Code of Ethics

Where a company has explicit guidelines for the members about what constitutes acceptable behaviour to stakeholders like staff or customers

  1. Changes in the board of directors

To include people from outside the business world who reflect broader interests.

  1. Social responsibility

By a company in the marketing of its goods and services, The entrepreneurs and employees have ethical responsibilities or obligations which are placed on them by virtue of the positions they occupy in the organisation.

  • Entrepreneurs should adhere to high ethical standards e.g. dealing fairly honestly and responsibly with his employees and other stakeholders
  • Employees are expected to exhibit the same high ethical standard of behaviour that will affect the company’s image financially and economically.



  • The business operators have a responsibility to protect and improve society and their actions should not in any way endanger a community or society.
  • They should display high degree of corporate responsiveness which is the ability of an organisation to relate its operations and policies to the environment in ways that are mutually beneficial to the organisation and the society.
  • Every enterprise small or large is expected to make positive contribution
  1. To the community development
  2. Product safety
  3. Employment generation
  4. Ethical business practices
  5. Contribution towards educational activities like award of scholarships
  6. Creating opportunity for apprenticeship training etc
  • Undertaking some of these responsibilities may endear the entrepreneur to his host community to enhance his/her image and social standing thus contributing significantly to his business success.
  • Every business has a social responsibility to contribute to the development of the society in which it operates. This social responsibility can be carried out in various ways such as
  1. Supporting and contributing towards environmental conservation programmes
  2. Ensuring that the goods and services produced and sold to the people are safe for human consumption
  3. Ensuring that workplace is safe and secure for workers
  4. Ensuring that the activities of the business do not cause environmental pollution or harmful effects to the surrounding community.
  5. Supporting and contributing towards social welfare programmes such as contributing towards the care of orphans. , HIV/AIDs victims and flood victims.


Businesses have a duty to obey the laws of the countries in which they operate and also to fulfil their contracts. Businesses are also a part of society and therefore they have a responsibility to maintain healthy and safe surrounding.

This is done by;

  1. i) reducing air and water pollution by applying appropriate waste disposal methods
  2. ii) packaging goods in environmentally friendly materials e.g. the polythene bags used for carrying goods   from the supermarkets or the shops do not decompose. They therefore make the environment very untidy   and unhealthy especially in towns.
  3. Keeping the business premises and work place clean at all times.
  4. Preserving the surrounding natural vegetation as much as possible
  5. Producing goods and services that are safe to use. These may be sold to consumers when safe especially when handling and using.


In conclusion therefore, is the implied obligation of the business acting in its official capacity to serve or protect the interests of community other than itself only?


Social responsibility can be put into three main categories.

  1. social obligation
  2. social reaction
  3. social responsiveness


  1. social obligation

Based on the fact that society supports a business by allowing it to exist, the business has a duty to supply the society with quality goods and services.


It should carry out its activities and make profit `within the limits of the law.

  1. social reaction

A business can sometimes be under pressure from society to do certain things. As such, the response of business gives/shows is referred to as a social reaction because the business is reacting to social pressure. This social reaction is not a voluntary action on the part of the business.


It is a behaviour demanded by a group or groups of people who have a direct interest in the organisations actions. E.g. a business could be forced to withdraw offensive advertisements by the public through social pressure.

  1. social responsiveness

This refers to actions taken by a business voluntarily. These actions may be due to the anticipation of future needs of a society which the business tries to satisfy.


A business that responds to the social needs will actively seek ways to solve social problems e.g. a business operating in a given locality may decide to employ some of the local people in order to reduce unemployment in the area.



A business should be socially responsible

Areas such as, to the customers by ensuring


A business should show social responsibility by

  1. Producing quality and safe products i.e. products should not be harmful to people’s health
  2. Fairly pricing products – prices should not be exploitative
  3. Having clear advertisements that do not misrepresent facts
  4. Treating customers fairly
  5. Offering clear credit terms and adequate product information
  6. Responding quickly to customers complaints
  7. Conducting research before allowing a product in the market
  8. Proper labelling, packaging and presentation of products in a manner that the quality and quantity hazards of use and limitations of use are clearly set.
  9. Advising consumers about products and their use



The business should be socially responsible to the government by:

  1. Complying with the government laws and regulations
  2. Paying proper taxes
  3. Supporting the government in welfare and development programmes



Business should show social responsibility to employees by:

  1. Paying them fairly without delay and treating them humanly.
  2. Safeguarding their health and safety by providing safe working environment such as offering safety gear e.g. dust coats, factory boots etc.
  3. Providing employees welfare through provision of recreational facilities, housing, transport and credit facilities
  4. Offering equal opportunities in matters pertaining to promotions and training
  5. Offering training and educational opportunities equally to employees



Businesses should be socially responsible to suppliers through:


  1. Fair and reasonable terms of purchase
  2. Fairness in tender allocation
  3. Paying suppliers for goods in time
  4. Not defaulting in payments
  5. Paying fair and reasonable interest rates to creditors
  6. Paying interest and principle amount in time to creditors




  1. By supporting or providing welfare programmes for the aged, handicapped and the under nourished in the community
  2. Making information concerning the business operations public
  3. Ensuring that business activities of the business do not have harmful effects to the community
  4. Providing educational recreational and healthy facilities
  5. Offering employment opportunities to disadvantaged in the society and even handicapped members too. Thus offering equal employment opportunities for employment to both males and females
  6. Avoiding pollution of environment through such things as noise , and waste products

A business should be socially responsible towards the environment by:

  1. Recycling products – some of the materials that pollute the environment if thrown away carelessly can be taken back to the factory for recycling. Such materials become raw materials when producing other products, e.g. used plastic materials can be reprocessed into pellets which in turn can be used for furniture or trays thereby creating a healthy environment.
  2. Reducing all types of pollution(noise, water, air etc.)
  • Ways of reducing noise can be devised e.g. those operating in Jua kali castor may be supplied ear plugs
  • Business in the manufacturing sector should get a way of getting rid of unwanted chemicals and other wastes instead of channelling them into rivers
  • Businesses should devise proper ways of disposing their gabbage, such waste pollutes the environment when disposed carelessly and it may breed flies especially during rainy seasons.

–           However where effluent from factories must be channelled into the river then it needs to be treated first.

–           used water by business operators if put back into the rivers is a threat to life of water creatures like fish and also unsafe for human consumption.

e.g. Nairobi river has suffered such pollution as a result of passing through an area that has both manufacturing and service industries.

Importance of Enterprise Social Responsibility

  • A marketing tool
  • Conducive atmosphere for the success of the business
  • Environmental conservation programmes
  • Ensures security for workers
  • Social welfare programmes


Benefits of Social Responsibility

  • It leads to creation of a better social environment both for the society and the business
  • It improves the value of the business shares on the stock exchange
  • It improves the image of the business to the public
  • It makes the business follow government regulations
  • It makes business live up to the social expectations
  • Such social actions are profitable to the business in the future
  • The business can develop new measures from which the society benefits

Limitations of Social Responsibility

  • It increases costs to the business
  • It makes the business to spend resources and thus reduces profit
  • Increased social responsibility cost is passed onto the consumers in form of higher prices
  • Most businesses lack the skills to solve social problems
  • The business might misuse its powers on the society
  • The business may deviate from its main purpose of existence




Ethics refers to prescribed or accepted code of conduct. For a business to run smoothly there must be rules and regulations that govern the behaviour of each and every employee.


These rules could either be written implied or naturally accepted especially if they affect the moral standards.


The Role of Ethics in Business

  • Encouraging good working relationships among workers
  • Ensuring good working relationship between employer and employee
  • Ensuring rights of individuals in working environment are protected e.g. a doctor is expected to treat and not kill
  • Ensuring that professionals relate professionally to their clients e.g. counsellor and their client
  • Helping workers to protect and hold a good reputation
  • Helping the workers to develop proper skills and right attitude towards their work.

–           The business set up and operations should be such that they provide ample facilities and opportunities for each employee too practice the business ethics. For example, it would be very difficult for an employee to uphold business ethics if the management mistreats him/her.


NB: Business ethics is not the same as social responsibility because social responsibility refers to relationship between organisations and the society around.

While ethics refers to set values and principles which influence how individual groups of people and society in general behave.


– Business  ethics deals with how such values and principles affect business operations. Business ethics therefore guides the business in ensuring fair play in business operations.

Need For Ethic Issues in Business


  1. Creates fairness in competition

Business ethics ensures that there is fair play as business firms compete with each other. e.g. It would be unethical to:

  • Buy competitors products and destroy them before they reach the market
  • Discredit competitors products with a view to reducing their sales
  • Damage the competitors promotional materials such as bill boards


  1. Ensures no discrimination in business

Business ethics ensures that there is no discrimination in areas such as recruitment, promotion training, remuneration, and assignment of duties. Everybody should therefore be equal opportunity or equal chance regardless of set of ethnicity.



  1. Ensures protection of the environment

Ethics in business prohibits business units from carrying out activities that may cause pollution and degradation of the environment.


Environment degradation may be caused by human activities such as logging and unplanned cultivation.


Pollution may be caused by activities like:

  • Dumping effluents from production units into water masses thus causing water pollution. This is disastrous to human health and animal.
  • Emitting carbon dioxide and other gases into atmosphere causing air pollution.
  • Damping of waste materials on the land surface causing solid waste pollution.
    1. Avoid consumer exploitation

Ethics ensures that consumers are not exploited by the business through:

  • Overcharging
  • False advertisement
  • Selling poor quality goods and services
  • Selling wrong quantities
  • Selling harmful commodities
    1. Ensures fair play in competition

Ethics ensures that businesses do not engage in unfair practices while competing with others. These practices include:

  • Destroying a competitor’s product or promotional tools such as billboards
  • Buying and destroying competitors products before they reach the market
  • Giving false information about a competitor’s product


  1. Ensures rights of employees are upheld

Ethics ensures that the employer does not violate the rights of employees especially as laid out in terms and conditions of employment. Such rights include payment of dues in time.

  1. Eliminates use of unfair means of achieving business objectives

Ethics ensures that business operations are carried out in a professional way. For example it is unethical to give or receive a bribe in order to win a business contract. It is also unethical to hold goods awaiting for their prices to go up.



The question of ethical business practice is a widely debatable subject.

  • Profit and morality are incompatible. For instance the pursuit of wealth is a barometer of success yet it is popularly believed that wealth tends to corrupt individuals.
  • All ethical problems have simple solutions i.e. right or wrong. This is a misconception based on the assumption that there is an absolute standard for judging moral conduct.
  • Ethics is simply a matter of compliance with laws and regulations

Despite these misconceptions, unethical behaviour is inherent in many entrepreneurs. This happens because of:

  • Greed
  • Inability to distinguish activities at work and at home
  • Survivalist thinking
  • Lack of foundation in the study of ethics etc.


However, some studies on ethical practices have shown that entrepreneurs have different concerns regarding specific business issues. Etc.


Issues that entrepreneurs believe require a strong ethical position Issues that entrepreneurs view with greater tolerance in regard to ethical position
Ø  Evaluating faulty investment advice

Ø  Favourism in promotion

Ø  Reporting dangerous design flaws

Ø  Misleading financial reporting

Ø  Misleading advertising

Ø  Cigarette smoking on the job

Ø  Tax evasion

Ø  Collision on bidding

Ø  Insider trading

Ø  Discrimination against women

Ø  Copying an idea etc.

Code of Conduct

The code of conduct within a business is a statement of ethical practices or guidelines to which an enterprise adheres. A variety of such codes exist; some relate to the business at large and some relate to corporate conduct. The codes cover subjects such as misuse of corporate assets, conflict of interest, use of inside information, equal employment practices, falsification of books and records etc. The codes of conduct are normally written and distributed to everyone in the business to read and follow.

Crime and the Small business

The cost of crime has become a major cause of small business failure all over the world. Crime in the business may be internal i.e. employee dishonesty or external i.e. robberies which sometimes may even be in collision with employees. The entrepreneur should be aware of such crime possibilities and make adequate provision for tackling them as they may lead to bankruptcy.


Fraud is very common and popular with the use of credit cards. The use of credit cards has grown tremendously in the recent past and the front-line defence in the small business can be salespeople and cashiers. They should have the knowledge and means to discover this type of crime effectively.


The following precautions can help reduce credit card fraud:

  1. Scrutinise Signatures – compare signature on sales ship to that on the card.
  2. Get Credit Authorisation – only one person whose signature is on the card is authorised to use it.
  3. Ask for additional identification etc.



Cheque Deception


Sometimes small businesses pass bad cheques which costs themmillion of shillings. The entrepreneur needs to establish a firm cheque cashing policy and procedure. This can be done by:

  • Supervisor approval
  • Photographs of customers
  • Cheque cashing limit
  • Intensive identification etc.



This is a crime involving the loss of stealing merchandise and this causes great loss to small businesses. In many cases, shoplifting is done by outsiders themselves, in collusion employees or outsiders themselves.



To deal with this problem, the entrepreneur should make employees aware of this problem and minimise opportunities for shoplifting.  For instance customers who visit the business more often arrange the merchandise or send sales people away, bears watching. Employees should also watch customers wearing loose clothing. Opportunities for shop lifting can be minimised by checking customers at entry points when entering and leaving etc. However, when shoplifting occurs,, the culprit should be arrested and prosecuted under the law.


Internal Theft

Internal theft is also very common in small business. The Presence or increase in internal theft may be attributed to poor hiring practices where the entrepreneur does not take due attention to the background of employees, poor employer- employee relationships, presence of theft opportunities, economic conditions etc.


The internal theft can be reduced by reduction of theft opportunities i.e. controlling keys – who should keep them, use of designated entry and exit points, signing in and out of employees etc


This is a fraudulent appropriation by a person to whom it has been entrusted. In most cases and embezzler is an employee of higher position of trust and confidence.



Example of Mary’s Successful Business that has Benefited Community

Mary is forty years old. She currently lives in Thika. Mary came to Thika when she was young. Her father worked as a cook in a restaurant. She attended Secondary School. After graduating, she did not qualify for college, but she was admitted at a Technical Institute where she enrolled in a two –year course in tailoring. On completion of her course, she was employed by a tailoring company in the Industrial Area of Thika.


She worked for this company for two years. Then she decided to start her own business. She obtained a loan from a commercial bank as capital for the business. From her savings, she contributed additional capital.


Mary then rented a room in the shopping centre nearest her house so that she could walk to work. She bought 4 sewing machines. She bought cloth and then employed 4 skilled tailors to do the cutting and sewing of the clothes. At first she made dresses, trousers and shirts. She displayed the products in her shop for customers to come and buy them. Later Mary visited several shops in the city square that sell uniforms in quantities. Two businesses placed orders with her to supply uniforms. To be able to meet this order, she needed to employ 5 skilled employees’ full time and 2 employees on part time basis. She also needed to buy three more sewing machines. Mary was able to meet her orders and her customers were satisfied with the products.


As Marys business expanded, she needed additional space. She rented a bigger room in a popular place in town. She was also nearer to her prospective customers as well as her existing customers. She continued supplying uniforms to two same companies and at the same time made clothes to sell to other customers. At this juncture she needed to employ an account clerk to deal with the records and handle cash for the business, and a messenger to do errands. Mary was the overall manager.


Mary organised exhibitions in Nairobi to advertise her products both to local customers and to customers in foreign markets. Soon after the first two exhibitions, she started exporting some of her products to neighbouring countries. Her net income rose quickly.


Mary is friendly to her customers. They like her because of her quality products and her honesty. Her employees also like her and are loyal and committed to their work. Five of her employees have worked in the business for over ten years. The employees and the customers have nicknamed her “fashion”. She like the name and has accepted it. Mary pays her employees reasonably well. She has also organised an insurance scheme for them. She pays them a travel allowance in addition to their monthly salaries.





The instructor/trainer will divide the class into four groups: A,B,C,D and assign each group two questions in relation to how Mary (as an entrepreneur ) has contributed to the national economic development of the society she lives in.



A person from each group will present a report of group responses.


GROUP A:     1.   Howhas Mary created employment for young people?


  1. Howhas Mary raised the standard of living of her employees?


GROUP B:      1.   Howhas Mary contributed to price stability and

increased completion in the textile industry?


  1. Howhas Mary assisted the Government in earning

foreign exchange?



GROUP C:     1.   Howhas Mary assisted the country in increasing the

Gross Domestic Product (G.D.P)?


  1. Howhas she contributed of entrepreneurial spirit and culture?



GROUP D:     1.   Howhas Mary utilised the local resources and how

has this contributed to the welfare of the nation?


  1. Howhas Mary provided cheap skills in terms of

Learning on the job?




After discussions, the instructor/trainer will have a person from each group give a report on their discussion. The class can then add their ideas after each report. Finally the instructor/trainer will briefly summarise all the points mentioned by each of the groups.








All businesses, small or large need information. Information is data that is relevant for a specific purpose. Businesses require information on new products, technological changes and competitors to be able to cope. The information must be communicated accurately and timely.  It must also be complete and relevant to meet the demands of today’s business environment.

Definition of Information and Communication Technology (ICT)

Information and Communication Technology is an umbrella term that includes any communication device or application. ICT describes a range of technologies for gathering, storing, retrieving, processing, analysing and transmitting information.

Benefits/Importance of ICT to a small business enterprise

A business can utilise ICT in pursuit of its objectives. ICT enables a business to access the relevant information for efficient management of the business.  This is in turn leads to;

  1. Increased profits,
  2. Improved time management,
  3. Increase in cost-effectiveness,
  4. Increase in sales,
  5. Higher market exposure
  6. Reduced work force among others.


Uses of ICT equipment

The following are some of the benefits associated with the various ICT tools :


  1. The Phone

The phone is used to communicate verbally with customers and suppliers.  This includes both the fixed line and mobile phones Other than verbal communication, the mobile phone is also used for sending and receiving messages, sending and receiving money e.g. MPesa.

Benefits of a mobile phone

  • It is affordable
  • It is easy to use and any one can understand its functions
  • It is portable and therefore can be used anywhere at any time
  • It is efficient because feedback is immediate
  • It can be used in extreme remote areas as long as the network coverage is available


  1. Radio
  • This is a very effective way to advertise a business
  • It is quite inexpensive and can reach a wide audience
  • Some communities have local radio service stations and the small business may use this service to advertise its products or services where the entrepreneur may be interviewed during a programme. Examples of such radio service stations are; Inooro FM, Murembe FM and Ramogi FM.
  • Television

A small business may use the television as a tool for sourcing technological information, new products/services, market trends and general information that will assist the entrepreneur to run his business.

  1. Print Media

Examples of such are; newspapers, advertising papers/magazines and business directories.

Newspapers e.g. the local dailies(The Nation) which the business enterprise can use to ;

  • Advertise their products/services
  • Get information on market trends
  • Access information on new technology, new products/services
  • Access information on political and economic trends in the country


Advertising Magazines/Papers/Journals/Business directories

These are useful tools for advertising products/services/ location of the business enterprise


  1. The Fax machine

This is short of “facsimile machine”.  This is a machine that allows transferring a copy of a document through the telephone line.  Both the person sending and receiving it must have a fax machine.


Benefits of the fax machine to small business

  • The message sent is received instantly
  • If one is dealing with people far away, the fax can be a less expensive means of       communication
  • The sent copy is like the original copy
  • A message sent through a fax machine confirms in writing anything  that has been    previously agreed on verbally


  1. The Computer

This is one of the modern ways of communicating and advertising in use.  It can be used in the following ways;

  • Word processing – writing letters or receipts
  • Storing information – financial data, customers addresses, suppliers addresses
  • Keeping track of records – purchases and sales
  • Reminder messages – products or service delivery dates
  • Generating advertising leaflets, posters or flyers
  • Generating financial statements
  • E-business – this is publicizing the business through the Internet


Emerging issues and trends

  1. i) Mobile phone money transfer: mobile phone payment service is used not only as a means of sending and receiving money but also for selling goods/services, paying bills (electricity, water, creditors), and also as a means of safe deposit/ banking.
  2. ii) Marketing: the mobile phone can be used as a tool of advertising a business product/service.









Due to the dynamic nature of the business environment, the user of this manual is advised to scan the environment for any emerging issues and trends in every sub-module unit and include it in the learning process.   New marketing methods and technologies for example, may emerge thus creating the need to be captured in the learning process.



Emerging issues and trends in entrepreneurship

Trends refer to long term movements in a certain direction. In society a trend describes a direction in the tastes and desires of the general population. For entrepreneurs, trends present an incredible world of opportunities. Once an entrepreneur identifies a specific trend then all their imagination and creative ability can go into generating products and services to satisfy the demand that the trend creates.



Due to the dynamic nature of the business environment, entrepreneurs are advised to scan the environment for any new trends. New marketing methods and technologies for example, may emerge thus creating the need to be inculcated within continuing business ventures.


Emerging trends in enterprise management can be classified as technological, global, social/cultural, or economic issues. Technological trends equip an entrepreneur with knowledge that is useful in the expansion and growth of the business. The use of new technology creates a competitive advantage for the business by opening a potentially attractive market for an entrepreneur.



Emerging Issues and Trends in Entrepreneurship


  1. Environmental conservation and the need to address environmental standards (NEMA).
  2. New marketing methods and technologies such as allowing managers to manage their enterprises in the comfort of their homes or mobile offices.
  3. introduction of business incubation centres such as:-
    1. export processing zones (E.P.Z’s)
    2. Kenya Industrial Research Development Institute (KIRDI)
  • Agricultural technology centres
  1. Kenya Kountry Business Incubator (KeKoBi)
  1. introduction of entrepreneurship education at all levels of education to inculcate the entrepreneurial cultlure.
  2. Globalisation –
  1. Networks being created among entrepreneurs to enable them go global.
  2. Opening unlimited business opportunities which small business enterprises can pursue.
    1. Business clubs – entrepreneurs are more aware and are forming business clubs in order to access opportunities and markets.
    2. Gender equity – more women entrepreneurs in self employment hence various financial and non-financial organisations to develop products targeting women.
    3. More youths being involved in self-employment ( Ministry of Youth Affairs)
    4. Large organisations are changing products and services regularly to suit for upcoming needs of their customers.
    5. Many people prefer to start small stalls rather than the traditional retail shops.
    6. E-Commerce
  • Being used globally to access customers and suppliers.
  • Use of ICT such as the Internet to market business activities and products.
  • Allowing a business enterprise to post/ have its profile in a website.
  • E-learning.


  1. the need for meeting quality standards (KEBS)
  2. Use of business plans which is becoming more of a requirement with many financial institutions.
  3. money transfer for example mobile phone payment service is used not only as a means of sending and receiving money but also for selling  goods/services, paying bills (electricity, water, creditors) and also as a means of safe deposit/ banking.
  4. human rights
  5. Alcohol and Drug Abuse (ADA)/ Drug and substance abuse.
  7. Conflict resolutions among others


Challenges posed by emerging trends and issues in enterprise management 

  1. Delays in processing approvals
  2. Meeting the required environmental standards

Management of challenges posed by emerging issues and trends in enterprise management

Complying with set rules



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